Retail Sector Ideas

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>>> Costco Wholesale (COST) -- a membership-only discount retailer with a market capitalization of nearly $250 billion, pays a quarterly dividend of $1.02 per share. The annual yield of 0.73% isn't impressive on the surface, but the company has raised its dividend annually since 2004.


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It also pays a special cash dividend roughly every three years. Given that pattern, shareholders can reasonably anticipate another special dividend in the near future since the last one was paid in December 2020 at $10 per share.

With Costco's business model, monitoring membership growth is an essential measure of health and future growth with membership price increases. In its last 12 reported months, the company grew its number of cardholders from 116.6 million to 124.7 million, resulting in a roughly 7% increase.

Costco's annual membership fees generate approximately $4 billion in high-margin revenue. The company's historical pattern indicates it raises these fees about every five or so years, and the most recent change occurred in June 2017, so it stands to reason that an increase in fees is likely on the horizon, which would boost membership revenue even more.

If there is a downside to investing in Costco, it begins and ends with its valuation. Using the standard valuation metric for mature companies of price-to-earnings (P/E) ratio, the stock trades at a P/E of 41.4, significantly higher than competitors Target and Walmart at a P/E of 16.8 and 31.6, respectively. Costco's five-year average P/E is 37.4, meaning the stock is currently trading at an even higher valuation than usual.

Despite maintaining a consistently high valuation, Costco's stock has demonstrated its status as a long-term winner, delivering a total return of 146% over the last five years. When combined with an impressive balance sheet with $7.2 billion more in cash than debt, Costco emerges as an essential holding for long-term dividend-focused investors.

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