Costco Wholesale Corporation (NASDAQ:COST) is doing so well when it comes to growth, that they have just announced they are providing a special dividend of $5.00 a share, payable Feb. 27 to shareholders of record as of Feb. 9.
That’s on top of the usual dividend of 36 cents per quarter for COST stock.
Costco is the pioneer in the super-grocery store trend that has recently spread throughout the nation. Growing quicker than their competitors, COST has increased their revenue 45% since fiscal 2010 through fiscal 2014 compared to a meager 17% revenue growth for Wal-Mart Stores Inc. (NASDAQ:WMT) across the same period
On top of better sales, COST stock has also steadily outperformed WMT stock and grossly outperformed the S&P 500 Index. In the past six months, COST stock has jumped about 32% vs Wal-Mart at less than 18% and the S&P 500 at only 5%.
Sure, WMT stock has a 2.3% dividend yield while COST’s is 1% or so, but Wal-Mart is sleepy and going nowhere. Meanwhile, Costco is poised for growth and success.
Let’s take a look at the specifics of why COST stock would be a great addition to your portfolio for 2015:
Costco Values Shareholders
COST stock is using its own cash along with debt to pay its shareholders a special dividend. Rather than sitting on their money, Costco decided to pay it back to its loyal shareholders, part of a long tradition of dividends and buybacks.
CFO Richard Galanti announced this week that the retail giant will be able to give back to COST stock shareholders without jeopardizing Costco’s growth opportunities. He said:
“Our strong balance sheet and favorable access to the credit markets allow us to provide shareholders with this dividend, while also preserving financial and operational flexibility to grow our business globally; and allowing for ongoing dividend and share repurchase activities.”
COST Stock Destined for Growth
Costco’s Q1 earnings for fiscal 2015 were $1.12, which is over 15% growth compared with earnings for Q1 2014. Clearly, Costco’s growth story is still going strong.
Costco’s business model compared to others like Wal-Mart’s has allowed them to generate more revenue and more growth. Unlike competitors, they charge a membership fee that has raked in more cash, and their membership income grew 6% with a whopping 90% of members renewing their membership.
And Costco also is hoping to expand its international success. Costco has recently ventured into the Chinese market and hopes to open more stores in Europe in fiscal 2016. The company plans to open seven warehouses in the next year both nationally and internationally.
Their strategy for growth is a clear indication that COST is a worthy stock to invest in, especially since their competitors are not doing so well in the international arena. Costco’s peer, Target Corporation (NYSE:TGT), recently announced that they are closing down all of their Canadian locations.
Costco Keeps Customers and Workers Happy
According to the American Customer Satisfaction Index, Costco is the most loved in its industry. Not only are Costco customers happy, but employees also are satisfied. Costco employees are paid more and provided more benefits than Wal-Mart or Sam’s Club employees.
While on the surface, paying workers more may seem costly, happy workers are more productive and COST sees less turnover as a result; it’s actually good for the bottom line in the long-run.
Rather than investing in a boring stock that’s flat-lining like Wal-Mart, it would be more beneficial to invest in COST stock, which is not only growing revenue nicely, but is giving back to their shareholders in generous dividends.
As of this writing Dana Kobilinsky, did not hold a position in any of the aforementioned securities.