Many investors don't think about Costco Wholesale's (COST +1.82%) dividends. It's long been a growth stock that has appreciated over 585% during the last 10 years (ended Nov. 7). During this span, the S&P 500 gained about 195%.
However, the company has been making payouts for more than 20 years, and the board of directors has a history of increasing them annually. Hence, it's important to consider how much it will shell out next year, and whether it can afford the payments.
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Doing the math
Costco declared $8.6 billion in dividends during its latest fiscal year, which ended on Sept. 1. However, this included an outsized $6.7 billion special dividend ($15 per share) that it paid in January. Typically, Costco pays special dividends every few years, so that's not likely to repeat next year.
NASDAQ: COST
Key Data Points
As of Oct. 1, Costco had about 443.1 million shares. It currently pays a quarterly dividend of $1.16 a share. Multiplying these two factors equals about $2.1 billion. However, since the board of directors has a history of increasing dividends in May, that figure will undoubtedly be higher.
Last year, Costco increased the payment by 13.7%. Assuming a 10% raise, the new quarterly payout would grow to $1.28. Based on this, the company's payouts would total about $2.2 billion.
Costco generates plenty of free cash flow (FCF) to cover these payments. Last year's FCF was $6.6 billion.
While you can certainly find stocks with a higher dividend yield than Costco's 0.5%, it's important to remember that this is only a small component of your potential total return. Dividend-seeking investors can also await the large special dividend that Costco may again pay down the road.
