Last update on 2024-06-27

Costco Wholesale (COST) - Dividend Analysis (Final Score: 5/8)

Explore the performance and stability of Costco Wholesale (COST) dividends through an 8-criteria scoring system, achieving a final score of 5 out of 8.

Short Analysis - Dividend Score: 5

We're running Costco Wholesale (COST) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Costco Wholesale (COST) shows a generally favorable performance. Costco has a notably high dividend yield at 2.8724%, higher than the industry average, and a robust average annual dividend growth rate of 107.99%, although this includes significant yearly fluctuations. Its average payout ratio remains below the 65% threshold, reflecting sustainable earnings distribution. Costco has maintained stable dividend payments over the past 20 years, ensuring predictable income for investors and showing a commitment to shareholder returns. The company has been paying dividends for 26 years, with notable growth in its dividend payouts. Overall, Costco presents a stable and attractive dividend policy with some areas requiring caution due to periodic high variability in certain metrics.

Insights for Value Investors Seeking Stable Income

Costco Wholesale (COST) shows strong signs of being a solid investment for dividend-seeking investors. The high dividend yield, stable and increasing dividend payouts over 26 years, and average annual dividend growth rate all enhance its attractiveness. However, potential investors should be aware of the significant fluctuations seen in dividend yield and growth rate in past years, which warrant careful monitoring. It's worth considering for those who value both income and long-term capital appreciation.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the annual dividends paid out by a company as a percentage of its stock price. This metric is crucial for investors looking for income, as it provides a view of the return on investment from dividends alone.

Costco Wholesale's current dividend yield of 2.8724% is significantly higher than the industry average of 1.51%. Historically, COST's dividend yield has shown considerable fluctuations, with exceptionally high figures in certain years, such as 2012 (8.1687%) and 2017 (8.95%), usually tied to special dividend payouts. For instance, in 2023, the dividend per share skyrocketed to $18.96 along with the yield. Despite some variability, the recent trend of a higher-than-average dividend yield is favorable for income-focused investors. This positive trend, coupled with Costco's robust stock price growth, suggests strong overall returns. This makes Costco an attractive option in terms of dividend investment, reflecting both reliable income and capital appreciation benefits.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate (DGR) measures the percentage growth of dividend payments of a company over a certain period. It indicates the company's ability to increase its dividend payments to shareholders consistently. A higher DGR signifies strong financial health and shareholder value proposition.

Analyzing the given data, there are substantial fluctuations in the dividend growth rates for Costco Wholesale (COST). Notable peaks can be seen especially in 2012 (771.89%), 2015 (376.72%), 2018 (411.42%), 2020 (405.95%), and 2023 (443.27%). These peaks might indicate special dividend payments or extraordinary financial performance. However, negative values in several years (e.g., 2007: -85.05%, 2017: -73.30%, 2021: -75.92%) raise concerns over consistency. When averaging these values, we get an Average Dividend Ratio of 107.99%, showing overall substantial growth over years. Considering the long-term trend, Costco appears to have generally maintained a robust DGR exceeding 5%, though the volatility calls for cautious optimism. Given these significant highs, the overall trend is good but the consistency of these trends should be monitored.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio represents the proportion of earnings paid out as dividends to shareholders, usually expressed as a percentage. A lower payout ratio, typically below 65%, is considered sustainable, indicating that the company retains enough earnings for growth and other investments. Historical payout ratios help evaluate consistency and long-term financial health.

The data shows that Costco Wholesale (COST) has had an average payout ratio of 54.43% over the last 20 years. Analyzing specific years, Costco's payout ratio remained below the 65% mark for the majority of years, except for notable spikes in 2012, 2015, 2017, 2020, and 2023, where the ratios significantly exceeded 100%. These spikes may be attributed to special dividends or extraordinary payouts. Despite these outliers, the overall trend demonstrates a disciplined approach toward dividend payments, ensuring that a substantial portion of earnings is retained for growth and operational needs. This trend is generally positive for investors seeking both income and potential for capital appreciation.

Dividends Well Covered by Earnings?

Explain the criterion for Costco Wholesale (COST) and why it is important to consider

Dividends are well covered by the earnings. This means the company’s earnings are sufficient to cover its dividend payments, indicating financial health and sustainability.

Dividends Well Covered by Cash Flow?

Explain the criterion for Costco Wholesale (COST) and why it is important to consider

Dividends Well Covered by Cash Flow means analyzing if the company's free cash flow (FCF) sufficiently covers dividend payouts. It indicates the sustainability of dividend payments without requiring additional borrowing.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments ensures predictable income for investors. This is crucial for long-term financial planning.

Over the past 20 years, Costco Wholesale (COST) has shown exceptional stability in its dividend payments, with no year witnessing a drop by more than 20%. This reflects the company's robust financial health and commitment to shareholders. The only seemingly significant fluctuations in their dividend payouts in years like 2012, 2015, 2017, 2019, and 2023 are primarily due to special dividends, which are bonuses on top of the regular dividends. For instance, in 2012, there's a significant spike to $8.065 from the previous $0.925, and this is followed by a return to a more typical payout in the following years. The overall trend demonstrates a consistent upward trajectory in regular dividend payments. Therefore, the stability criterion is well met, making COST a reliable choice for income-seeking investors.

Dividends Paid for Over 25 Years?

Whether a company has consistently paid dividends for over 25 years

Costco Wholesale (COST) has been paying dividends to its shareholders for 26 years according to the data provided. Dividends have been increasing over time, which is a good indicator of the company’s financial health and commitment to shareholder returns. In 2004, Costco began paying a dividend of $0.30 per share, which has grown exponentially to $18.96 per share in 2023. This trend is highly favorable as consistent dividend payments over such a long period signify stable earnings and positive cash flow generation. Therefore, Costco's dividend payment record is positive for investors seeking reliable income.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Costco Wholesale (COST) and why it is important to consider

The criterion of reliable stock repurchases over the past 20 years evaluates whether a company consistently buys back its own shares. This is important because it indicates a potentially shareholder-friendly management, can signal confidence in the company's future, and can also help increase the stock's value by reducing supply. Some investors view regular buybacks as a positive indicator of financial health.