Costco Wholesale Corporation COST, a membership warehouse retailer, gave investors reasons to cheer by boosting its dividend payout and announcing a new share repurchase program. These shareholder friendly moves accentuate this Issaquah, WA-based company’s financial stability and resilience toward the tough retail landscape.
The board of directors raised the quarterly dividend by 14% to 65 cents a share to be paid on May 24, 2019. The dividend yield based on the new payout and the last closing market price is approximately 1.1%. Last year in April, Costco increased regular quarterly dividend by 14% to 57 cents.
The board also reauthorized a share repurchase program of up to $4 billion, which will expire in April 2023. This overrides the current $4 billion authorization, which expired earlier this month and still had approximately $2.2 billion at its disposal.
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 and share repurchases 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.
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Stock Ascends 15% in Three Months
Costco’s growth strategies and sound fundamentals reinforce its position in the fast changing retail landscape. Notably, shares of this Zacks Rank #2 (Buy) company have advanced 15.4% in the past three months compared with the industry’s growth of 11.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The stock has also comfortably outperformed the Retail-Wholesale sector and the S&P 500 index that have advanced 8.9% and 9.2%, respectively, in the said time frame. Further, the stock is hovering close to its 52-week high of $248.70.
We see no reason why Costco with a VGM Score of B and long-term earnings growth rate of 9% cannot breach that mark in the near term.
Sturdy Comps Performance Continues
Improving labor market, rising disposable income and elevated consumer sentiment have ushered confidence in Costco that continued with its stellar comparable sales (comps) performance in 2019. Notably, comps for the month of March rose 5.7% following an increase of 3.5% in February and 5.2% in January. Comps for March reflect an increase of 6.9% in the United States, 3.8% in Canada and 1.6% in Other International locations, respectively. Meanwhile, net sales improved 7.4% to $13.87 billion in the month of March, following an increase of 5% and 8% in February and January, respectively.
Costco Wholesale Corporation has been able to create a niche for itself on the back of growth strategies, better price management, strong membership trends and increasing penetration of e-commerce business.
It is steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea and Taiwan. E-commerce comparable sales surged 20.6% in March 2019, following an increase of 24.2% and 22.1%, in the months of February and January, respectively.
Costco is committed toward ramping up investments in the wake of rising competition from the likes of Dollar Tree DLTR, Dollar General DG and Ross Stores ROST. We believe that the company’s business model and commitment toward opening membership warehouses will continue to drive traffic. Notably, membership fees have increased 9.5% and 7.3%, in the first and second quarter of fiscal 2019, respectively.
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