Excitement about the stock market has pushed some major market benchmarks to record levels in recent days. The possibility that an end to high interest rates could be in sight is making investors more optimistic than ever about 2024's prospects.
Yet no matter how rosy the market looks, investors always love a company that can deliver solid results year after year and reward them with strong total returns over time. Costco Wholesale (COST 1.01%) has been a stellar performer for decades, and it just made yet another move to show why the warehouse retailer's stock could be an investor's best friend.
Costco stays strong
Shares of Costco Wholesale were up between 2% and 3% early Friday morning. The retailer reported fiscal first-quarter financial results for the period ended Nov. 26 that showed the strength of the consumer economy.
Net sales at Costco were up 6.1% year over year, coming in at $56.72 billion. The company also collected $1.08 billion in membership fees, up by roughly 8% from year-ago levels. Costco attributed some of the gain to the shift in the calendar, because last year's quarter didn't include the Thanksgiving holiday, but this year's did. By its estimate, Costco picked up about half a percentage point of growth from the calendar impact.
Net income for the quarter climbed an even healthier 16% to $1.59 billion. That worked out to $3.58 per share, up from $3.07 per share a year ago.
Sales trends were generally favorable, although Costco enjoyed greater success abroad than in its home U.S. market. Comparable sales for the quarter were up just 2.6% on an adjusted basis in its 600 U.S. locations. However, the 108 stores that Costco has in Canada collectively posted comps that were up 8.2%. Comps for the other international segment, which includes 163 warehouses across the globe, were up 7.1%. E-commerce sales gained 6.1% year over year.
A big reward for Costco shareholders
Perhaps the best news for Costco investors, however, came from the warehouse retailer's board of directors. Costco announced that it would pay a special dividend of $15 per share to shareholders in mid-January. The gain in Costco's stock price was actually a bit higher than that, even though the cash payment will reduce the value of assets held by the company.
Costco does pay a modest regular dividend of $1.02 per share, which works out to a yield of less than 0.7% based on current share prices. However, the warehouse retailer has periodically made supplemental special dividend payments to its shareholders as well.
None of the previous special dividends has been this large, though. In 2020, Costco shareholders received $10 per share. Payments in 2012 and 2017 were $7 per share, with a smaller $5-per-share payment in 2015.
What's next for Costco?
With many investors having hoped that a special dividend would be coming, the next question for Costco is whether it will increase membership fees. The revenue that those fees generate comes with a high profit margin, with nearly all of it falling down to Costco's bottom line in earnings. It's been seven and a half years since Costco last raised its fees, and that's longer than the period in between previous increases historically.
For now, though, Costco has benefited from shoppers seeking any possible escape from the impact of inflation on their necessities. Even with inflationary pressures apparently subsiding, Costco still remains a favored choice among shoppers. With good tidings for the holiday season, the retail stock has earned a place in many investors' hearts -- and could make a good choice for those who like cash gifts from time to time.
