Decoding the Impact of the $15 Special Dividend on COST Stock

Decoding the Impact of the $15 Special Dividend on COST Stock

Posted On December 26, 2023 2:32 pm

Costco Wholesale Corporation (COST), a leading membership-based warehouse retailer, last week announced that its Board of Directors declared a special cash dividend on common stock of $15 per share, payable January 12, 2024, to shareholders of record as of the close of business on December 28, 2023. The aggregate amount of the payment will be nearly $6.70 billion.

This marks the fifth special dividend to be paid by Costco in the last 11 years and its largest so far. The special dividends paid previously were in 2012, 2015, 2017, and 2020 in the amounts of $7, $5, $7, and $10, respectively.

COST has shown significant resilience even as other big-box retailers raised caution on the consumer outlook. The recent news of Costco’s special dividend builds on its stellar financial performance in the first quarter of fiscal year 2024.

In addition to the special dividend, the warehouse club chain pays a regular annual dividend of $4.08, translating to a yield of 0.62% at the current share price. Its four-year average dividend yield is 1.36%. Moreover, COST’s dividend payouts have increased at a CAGR of 12.9% over the past three years. Costco has raised its dividends for 19 consecutive years.

After the retailer topped analysts’ estimates in the last reported quarter and announced a $15/share special dividend, shares of COST have been moving up the charts lately. The stock has surged nearly 14% over the past month and more than 28% over the past six months.

Robust Last Reported Financials

For the fiscal 2024 first quarter ended on November 26, 2023, COST reported revenue of $57.80 billion, slightly surpassing analysts’ estimate of $57.79 billion. This compared to the revenue of $53.44 billion in the same quarter of 2022. Its same-store sales grew 3.8% from a year ago. Also, e-commerce sales rose 6.3%, driven by solid demand during the Black Friday weekend.

The company said its sales got a significant boost during the recent Thanksgiving weekend when it sold more than four million pies. Also, COST made $100 million from the sale of gold bars during the quarter.

Costco added nearly 72 million paid household members in the first quarter, an increase of 7.6% compared to the same period last year. Shopping frequency at its stores grew 4.7% worldwide and 3.6% in the U.S.

The retailer’s operating income rose 13.3% year-over-year to $1.98 billion. Its income before income taxes was $2.11 billion, an increase of 19% from the prior year’s quarter. Also, its net income grew 16.5% year-over-year to $1.59 billion. The company posted a net income per share of $3.58, compared to the consensus estimate of $3.42, and up 16.6% year-over-year.

COST’s cash inflows from operating activities were $4.65 billion, up 78.2% from the previous year’s period. As of November 26, 2023, Costco’s cash and cash equivalents totaled $17.01 billion, compared to $13.70 billion as of September 3, 2022.

Improved Discretionary Spending During the Holiday Season

Costco got a solid start to its new fiscal year 2024, as consumer demand for discretionary items surged at the beginning of the holiday season.

According to the National Retail Federation (NRF) forecast, holiday spending is anticipated to reach record levels during November and December this year and will grow between 3% and 4% from 2022 to between $957.30 billion and $966.60 billion.

“It is not surprising to see holiday sales growth returning to pre-pandemic levels,” said Matthew Shay, NRF President and CEO. “Overall household finances remain in good shape and will continue to support the consumer’s ability to spend.

Expanding Store Footprint

During the first quarter of 2024, the company opened ten new locations and plans to open approximately 33 locations over the coming year, up from 23 a year ago.

Costco currently operates 871 warehouses, including…

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