Did you miss out on an amazing opportunity if you passed on investing in Costco Wholesale's (COST -0.55%) IPO? Probably, but it doesn't matter. Costco has a differentiated and strong business, and there are still more gains to be had ahead.
Costco demonstrated its resilience during the pandemic as members flocked to its warehouses to get bulk quantities of essentials from the discount retailer, and the numbers remain strong well into post-lockdown. In the second quarter ended Feb 14, sales increased 15%, comps were up 13%, and e-commerce grew 76%.
Let's see how much money you'd have if you had invested in Costco's IPO, and whether or not you can still get rich through investing in Costco stock.
How it all began
Costco went public in 1985 at $10 per share. The stock has split four times since then: 2 for 1 in 1991, 3 for 2 in 1992, 1 for 1 in 1994 for the new enterprise related to the spin-off of Price Enterprises, and 2 for 1 in 2000. The split-adjusted IPO price is $1.67. If you had invested $1,000 at that price, you would have gotten approximately 599 shares. At Costco's 52-week high, that would have given you $232,454. At the last closing price, that would give you $194,029. Instead, if you had invested $10,000, you'd be a millionaire today just from Costco stock.
How dividends play in
Costco pays a quarterly dividend that doesn't yield a high amount, currently 0.86%. But it also pays a special dividend on occasion, which has worked out to be almost every two years over the last eight years. The last special dividend was paid in December 2020 for $10.
For 599 shares, that would net you almost $6,000 from that one dividend, and nearly $30,000 over the past 10 years. If you would have reinvested all of your dividends, you would have several hundred more shares and a lot more money. If not, you'd have a nice amount of extra income.
Do you have any chance to still get in on gains from Costco stock?
Absolutely. Costco is having some of its best quarters ever, and it's been continuing even after most lockdowns have been lifted. It has successfully adapted to e-commerce, giving it plenty of room to run in that space. Second-quarter e-commerce growth dropped slightly from the first quarter, but Costco has a well-run omnichannel program that can service its consumer needs as they get back to shopping in-store.
Customer retention is very strong, at about 90%, and millions of new customers join every year to take advantage of Costco's low prices.
Shares of Costco are trading at a reasonable 33 times 12-month trailing earnings. That's after Wall Street's given it a good wringing out over the past month and sent it down to its lowest price since July, making this a great entry point for investors who've been waiting to buy on a dip.
Costco stock has gained an annualized rate of 16% over the past 20 years without factoring in dividends, beating out the S&P 500's rate of 11%. That's not super-high-growth territory, but it's a stable growth rate with a dividend, making Costco an excellent choice for a long-term or retirement portfolio.