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Costco (COST) Hikes Dividend: Here's What Else You Should Know

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Zacks Equity Research
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Most companies resorted to various cost-containment measures to counter the liquidity crisis, when the pandemic gripped the economy. These include pay cuts or furloughs, reducing discretionary expenses or curtailing capital expenditures, and even halting share repurchases or pulling back dividends. More than a year later and things are looking up, thanks to swift vaccination drive and stimulus package. Market pundits are of the opinion that resumption of normal business activities could pave the way for dividend hikes and share buybacks this year. Well, for now investors have some good news from Costco Wholesale Corporation COST.

This operator of membership warehouses has announced an increase in its quarterly dividend. The company’s board of directors raised the dividend by 12.9% to 79 cents a share, which is payable on May 14, 2021 to shareholders of record at the close of business on Apr 30, 2021. Last year in April, the company hiked its regular quarterly dividend by 7.7% to 70 cents. Again, in November last year, it declared a special cash dividend of $10 per share, which was paid on Dec 11, 2020.

Impressively, this Issaquah, WA-based company is among those handful of companies who continued to reward shareholders even amid the crisis. Backed by sound fundamentals and robust financial strength, Costco has time and again highlighted its commitment to enhancing shareholder value. The current hike reflects strong cash flow generation capability driven by better execution of operating plans.

We believe that such strategic steps not only enhance shareholders’ value but raise the market value of the stock as well. In fact, through these dividend increases companies persuade investors to either buy or hold the scrip. People looking for regular income from stocks are most likely to choose companies that have a track record of consistent and incremental dividend payouts.

What Else You Should Know

Costco’s growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. The strategy to sell products at discounted prices has helped draw customers, who have been seeking both value and convenience amid the ongoing crisis. Cumulatively, these factors have been aiding in registering impressive sales numbers.

Remarkably, Costco’s comparable sales for the month of March rose 16%. This followed an increase of 13.8% and 15.9% in the months of February and January, respectively. The company’s net sales increased 17.6% in March. This followed an improvement of 15.2% and 17.9% in the months of February and January, respectively. We also note that e-commerce comparable sales surged 57.7% during March.

Costco continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. It is also focused on ramping up investments in the wake of rising competition from the likes of Dollar Tree DLTR, Dollar General DG and Target TGT. We believe that the company’s business model and commitment toward opening membership warehouses will continue to drive traffic.

Costco currently operates 808 warehouses, comprising 559 in the United States and Puerto Rico, 105 in Canada, 39 in Mexico, 29 in the United Kingdom, 28 in Japan, 16 in Korea, 14 in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France, and China.

We note that shares of this Zacks Rank #3 (Hold) company have advanced approximately 10.9% in the past month compared with the industry’s rally of 8.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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