Costco announced they will be distributing a special dividend to stockholders next month. The company already had plans to pay their quarterly dividend of 27.5 cents per share, which they will pay in addition to the one time special dividend. The special dividend comes at a time that finds Costco enjoying good financial times, with revenue for the month of November up 9% to $8.15 billion and comparable store sales up 6%. Wall Street analysts had expected a 5.4% increase, so needless to say investors are happy with the news. For a stock trading around the $100 range this special dividend really pumps up the returns for investors.
Because the treatment of stock dividends is expected to cost investors receiving them more money after the end of the year, companies are looking at year end dividends as a way to reward investors before tax implications in the new year erode the total dollars investors get to keep.
Costco’s business model relies heavily on their membership fees, as they provide consumers deeply discounted pricing compared to traditional retailers. The company offers basic memberships to their warehouse club for $55 a year with other membership levels available that come with added perks. Costco has seen double digit growth in their membership base for more than ten years and the company is quickly approaching the point where they will need to look outside the borders of the U.S. to continue their growth.
Costco currently has 85% of all its locations within North America, but the company’s plans for 2013 include major international expansion. More than half of Costco’s new stores will be outside of the United States and the company has long term plans for global expansion beyond next year.
With economic conditions putting many consumers across the globe into a state of constantly looking for ways to save money, Costco’s business is poised to enjoy strong growth. For those who own stock in the company, talk of Costco’s worldwide expansion is more than just rhetoric. One of the big concerns for investors and Wall Street analysts is a lower rate of renewals in Costco’s non-U.S. stores. Within the U.S. Costco enjoys a strong renewal rate, but their stores outside of North America have not met expectations.
Costco is the fifth largest retailer in the country and has enjoyed an enviable growth pattern for over a decade. While consumers worldwide look for ways to save money, warehouse clubs like Costco will be high on their list of ways to do just that. Some consumers will be satisfied to just own their membership card, but others will want to own a stake the company that serves them so well. Some of the greatest investors ever have talked about investing in companies with products and services you use and believe in.
It’s a simple premise, but one that many investors don’t seem to embrace. If you’re looking for an investment with solid fundamentals, Costco is worth a look, even if you aren’t the type to buy in bulk. For investors solid fundamentals are key.
