Why Now Is a Great Time to Buy Costco Stock


  • A new CEO has just begun his tenure at Costco Wholesale (COST).
  • The company also just issued a special dividend of $15 a share to stockholders. 
  • And Costco’s earnings and growth continue to be among the best in the retail sector. 
COST stock - Why Now Is a Great Time to Buy Costco Stock

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Costco Wholesale (NASDAQ:COST) stock continues to be one of the best blue-chip stocks investors can buy and remains the gold standard of the retail sector. In the last 12 months, COST stock has risen 40%, bringing its five-year return to shareholders to 230%.

The warehouse club’s stock continues to run circles around its largest competitors, such as Walmart (NYSE:WMT), whose stock is up 13% in the last year, and Kroger (NYSE:KR), whose share price has gained 4%. However, investors shouldn’t feel that they’ve missed the boat with Costco. The truth is that there’s never a bad time to buy this best-in-class stock.

A New Era for COST Stock

A new era has just begun at Costco. On Jan. 1 of this year, Ron Vachris became the new CEO of the grocery and consumer goods retailer, taking over from the long-time previous CEO Craig Jelinek.

In a sign of just how rock solid Costco’s management team is, Vachris is only the third CEO in Costco’s 40-year history. He began his career with Costco as a forklift driver in the mid-1980s and has served in every major role related to the company’s operations, most recently as the company’s chief operating officer.

COST stock didn’t budge when the CEO transition was announced last fall, and analysts greeted the news as both positive and expected.

Every member of Costco’s executive management team has been with the company for over 20 years, which helps explain the consistency of its products and services, as well as its flawless execution. Costco is reliable to its customers.

Even the $1.50 hot dog and soft drinks that are sold at its outlets haven’t changed since they were first introduced in 1985.

Earnings Out-Performance

Costco’s strong stock performance is driven by its consistent earnings growth. With a loyal customer base, Costco is the type of company that makes money in any economy.

The company, which reports its earnings on a monthly basis, recently announced that its revenue rose 9.9% in December from a year earlier to $26.2 billion. That was almost double the 5.1% revenue increase seen in November of last year and was boosted by strong holiday sales.

In December, Costco’s same-store sales gained 8.5% year-over-year, which was more than double the 3.5% growth seen in November. Foot traffic increased 6.5% in the U.S. and 7.5% worldwide, and e-commerce sales surged 17.7% in December from a year ago. This shows that online sales channels are strong and growing.

While food remains its main sales category, Costco is increasingly selling other items ranging from gold bars and jewelry to gift cards and gasoline. Costco currently has 72 million paid household members, up nearly 8% from a year ago.

The company boasts a 90% renewal rate for its annual memberships, the highest in the retail industry. With 70% of its 861 warehouses situated in the U.S., there’s plenty of room for international expansion. The company is averaging about 10 new store openings per quarter.

Rewarding Shareholders

Another great reason to buy COST stock is that the company is committed to rewarding its shareholders. On Jan. 12 of this year, Costco paid its stockholders a special cash dividend of $15 per share.

It was the fifth special dividend paid by Costco in the last 11 years. The company spent $6.7 billion paying the most recent special dividend, which continues the company’s pattern of returning excess cash to its shareholders.

Besides the special dividend, Costco pays a regular quarterly dividend to stockholders of $1.01 per share, giving it a yield of 0.59%.

COST stock might not look cheap trading at 46 times future earnings estimates, but the premium price is justified by the company’s exceptionally strong earnings, future growth potential, and its consistent share price appreciation. Costco is not a cheap stock to own but it is a consistent winner.

Buy COST Stock

Costco’s stock does not decline often. With its excellent management team, earnings out-performance, and focus on rewarding shareholders, Costco’s share price consistently rises. Investors waiting for a pullback could be waiting a longtime.

With a new CEO tenure starting, the economy remaining resilient, and the stock market booming, investors should consider a position in this leading grocery retailer. COST stock is a buy.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

Article printed from InvestorPlace Media, https://investorplace.com/2024/01/why-now-is-a-great-time-to-buy-costco-stock/.

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