Costco's (COST 0.85%) business is admirable in many ways. With low-pricing leadership, loyal customers, a membership model, and a significant international growth opportunity, there's a lot to like about the wholesale retailer. But one part of the company's business that arguably deserves more praise than it gets is its attractiveness as a dividend stock. This is evident not only by the company's long history of raising its dividend annually but also through the occasional special dividends it pays investors and its war chest of cash to support its dividend payments.

To better understand Costco's appeal to dividend investors, let's examine the special dividend. In addition, let's explore if and when another special dividend could be paid to shareholders.

As it turns out, a special dividend may be on the horizon -- and it may be a big one.

Understanding Costco's special dividend

A special dividend is a dividend a company pays out at irregular intervals on top of a regular dividend. Most companies don't pay special dividends. Some pay them out once or twice. Others, like Costco, make a habit of doing it more regularly. But the distance between each special dividend is not always the same -- and management has emphasized that shareholders shouldn't count on any perfect rhythm to future special dividends.

What's attractive about Costco's special dividends are their size. For example, the wholesale juggernaut paid out a special dividend of $10.00 per share in December of 2020. This dwarfed its quarterly dividend of $0.70 at the time. Indeed, it's still far bigger than the company's quarterly dividend of $1.02 today. 

In total, Costco has paid four special dividends. A $7.00 payout in 2012, $5.00 in 2015, $7.00 in 2017, and $10.00 in 2020.

Another special dividend is highly likely

To get an idea of when Costco could pay shareholders another special dividend, consider the time between each of the special dividends it has paid out so far. Costco's first special dividend was paid in December of 2012, with its next special dividend occurring about two years and two months later. The company paid its next special dividend two years and three months after that, on May 2017. Finally, Costco paid its most recent special dividend of $10.00 just under three years and seven months later. So there's been an average of about 2 and a half years between Costco's four big payouts.

So when could another special dividend payment be announced? With its last special dividend in December of 2020, it's quite possible that Costco pays a special dividend sometime this year.

Management certainly isn't counting the possibility of a special dividend out. In Costco's fiscal first-quarter earnings report in December of last year, chief financial officer Richard Galanti said that, given the company's strong cash balance, it's "probably a question of when, not if" as it relates to another special dividend. 

The CFO reiterated the possibility of a special dividend in Costco's most recent earnings call in March, saying it's "still an arrow in our quiver" despite ways to generate meaningful returns on cash these days.

If Costco does opt to reward shareholders with another special dividend, it's impossible to know how big it will be. But it will almost certainly dwarf its current quarterly dividend. Costco boasted more than $13.7 billion of cash, cash equivalents, and short-term investments at the end of this most recent quarter. Total debt was less than $6.6 billion. Considering that many retailers operate their businesses with significantly more debt than cash, it's safe to say that Costco has plenty of excess cash to utilize for a special dividend.