As the market and economy show signs of strain, investors may look to companies built for resilience. Few better fit that description than Costco Wholesale (COST 3.25%), which is supported by a loyal membership base of cost-conscious shoppers.
The increasingly global retailer recently released its latest earnings report, offering fresh insight into its financial health. So, let's examine those results, dividend history, and valuation to determine whether the stock is a buy, sell, or hold in 2025.
Costco memberships and sales continue to go up
For Costco's most recently reported quarter (fiscal Q2 2025), the company generated $62.5 billion in revenue and $1.8 billion in net income, representing year-over-year growth of 9.1% and 2.6%, respectively. The company ended the quarter with 78.4 million paid household members, up 6.8% versus last year, and 140.6 million cardholders, up 6.6% year over year.
NASDAQ: COST
Key Data Points
Those results follow a membership fee hike in September 2024, which raised the fees for U.S. and Canadian members (representing approximately 52 million) by $5 for Gold Star and Business accounts to a $65 annual fee and $10 for Executive Memberships in the U.S. and Canada from $120 to $130.
Management attributed roughly 3% of the quarter's $1.2 billion membership fee revenue to the recent increases and expects the full impact of the new pricing to be realized over the next four fiscal quarters.
COST Revenue (TTM) data by YCharts
Costco has a growing dividend
With Costco's steady revenue and net income growth, the company has become a reliable dividend-paying stock. While its annual dividend yield of 0.5% may underwhelm income-seeking investors, the company has paid and raised its dividend for 20 consecutive years. If history repeats, its Board of Directors will likely announce a dividend increase to its current quarterly distribution of $1.16 per share sometime in April.
Additionally, Costco is known for its long history of paying special cash dividends, with five over the past 13 years. Notably, the last one was paid in January 2024 at $15 per share.
Costco can easily afford to pay these dividends due to its low payout ratio and healthy balance sheet. First, its payout ratio -- the portion of earnings allocated to dividends -- stands at a conservative 20.3%, well below the 75% level at which companies often risk cutting or pausing dividends.
Second, Costco is debt-free and has $7.4 billion in net cash, meaning it earns interest on its cash instead of being bogged down with interest expenses like many of its competitors.
Given those factors, all signs point to continued dividend growth and special cash dividends for years to come.
COST Net Financial Debt (Quarterly) data by YCharts
Costco stock has a rich valuation
The late Charlie Munger, who served as Berkshire Hathaway's vice chairman and was a longtime member of Costco's board, once called Costco a "perfect" company, with one exception -- its high valuation. Based on the widely used price-to-earnings (P/E) ratio for evaluating mature companies, Costco trades at 52.1 times its trailing earnings.
Investors can better understand a company's valuation by comparing its P/E ratio with its competitors and its own historical averages. For example, Target and Walmart have P/E ratios of 11.8 and 35.1, respectively. Certainly, Costco's cash position is an important factor as Target and Walmart carry net debts of $11.2 billion and $30 billion, respectively.
At the end of 2024, Costco had 897 warehouses, with 69% in the United States. Management plans to open 25 to 30 new warehouses per year, with just under half in international markets, including Canada, Mexico, Asia, and Europe.
COST PE Ratio data by YCharts
What should investors do with Costco stock?
Costco's premium valuation is hard to ignore, but that shouldn't be a reason to move away from the stock, especially in a turbulent economy where the discount warehouse retailer thrives. CEO Ron Vachris recently underlined this point, saying, "In uncertain times, our members have historically placed even greater importance on the value of high-quality items at great prices. And our teams will continue to rise to this challenge by leveraging our global buying power, strong supplier relationships and innovation."
That strategy is clearly working, with renewal rates holding steady at 93% in the U.S. and Canada and 90.5% worldwide. Given its solid fundamentals and healthy dividend, Costco remains a hold for long-term investors despite a lofty stock price.
