Every investor should own shares of companies that pay and raise dividends. Over years and decades, those dividends can make significant contributions to the income stream one will be counting on in retirement. 

Of course, the ultimate stock investment is one where capital appreciation beats the overall market, while also sharing its success by returning capital to shareholders in the form of dividends. Warehouse retailer Costco Wholesale (COST 1.11%) has been one of those stocks over the last decade.

But with its dividend recently yielding just 0.7%, it's fair to ask if Costco is still a great dividend stock. There are several reasons why it is.

Overall returns

Costco shares are down about 15% in 2022, roughly in line with the general stock market represented by the S&P 500 Index. But its long-term record of total returns -- including dividends -- is remarkable versus that index. 

Chart showing Costco's total return beating the S&P 500 since 2019.

COST Total Return Level data by YCharts

Overall returns are what's important for retirees and other investors, but of course there's no guarantee that Costco's results versus the S&P 500 over the past decade will be repeated. Dividends aren't guaranteed to continue either, but every company's management typically wants to avoid having to reduce or eliminate a dividend once it has a track record of offering them. That's one reason Costco applies the strategy it does regarding dividends. 

Sharing in the good times

While Costco's dividend yield is relatively low, it has a history of occasionally paying special dividends when business conditions warrant. It most recently paid a $10 per share special dividend in November 2020, making it the fourth one in the last nine years.

Investors don't have to count on those extraordinary dividends completely. The company also continues to raise its base dividend. It last boosted that payout by 14% in April 2022. 

Costco's overall dividend strategy is conservative, since it has an affordable base dividend regardless of any economic cycle. But sharing its excess cash with shareholders is really what makes it a great dividend stock to buy

Don't fear the ebbs and flows

The company has been experiencing the strong part of the cycle in recent years. In its 2022 fiscal year (ended Aug. 28), Costco's total sales increased 16% over the prior year. That follows an increase in fiscal 2021 of 17.7% over 2020. Net income grew 16.6% in fiscal 2022 year over year, showing the growth in sales at the bottom line. 

Growth in fiscal 2023 is starting out a little slower. Costco just reported that its quarterly sales in the fiscal first quarter increased 8.1% over last year. That shouldn't be surprising considering the surge in growth over the last few years. But long-term investors shouldn't fear cyclicality.

Costco's business will go through various cycles like any other. Sales, including online, soared during the COVID-19 pandemic from the "stay-at-home" trends. But consumers looking to cut spending will also move toward buying non-discretionary items where they can get the best value during economic downturns. So even the down cycles in Costco's business remain somewhat muted.

But when business does thrive, investors can rest easy knowing the company has historically been very generous returning capital through the special dividend. That, along with a steadily rising base dividend, makes Costco a great dividend stock.