Like a Costco Wholesale Corporation (NASDAQ: COST) member, you may also want to consider investing in the popular dividend warehouse club.
But what exactly are dividend stocks? Dividend Shares refer to a payment that a company makes to its shareholders, usually issued in cash payment form, through additional stock, and possibly through other forms of payment from that company. A company’s board of directors makes the decision to offer dividend payments. The membership business model is successful because it offers bulk items at lower prices to ensure customer loyalty.
Does Costco Fit Your Dividend Requirements? Let’s take a look at information about Costco Wholesale Corporation and the pros and cons of investing in this ever-popular dividend payer.
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About Costco Wholesale Corporation:
The first Costco opened in Seattle in 1983, and the Price Company and Costco merged in 1993 to form Price/Costco. The 1997 company name was changed to Costco Companies, Inc. and the company name was solidified in 1999.
According to our MarketBeat profileCostco Wholesale Corporation operates membership warehouses outside the United States (including Puerto Rico) and around the world, including the following countries:
- Canada
- The United Kingdom
- Mexico
- Japan
- Korea
- Australia
- Spain
- France
- Iceland
- China
- Taiwan
The company offers a wide range of products, including the following:
- Miscellaneous
- Dry groceries, meat, produce, delicatessen and bakery products
- Sweets
- Deli products
- Appliances
- Electronics
- Health & Beauty Tools
- Hardware
- Garden and patio products
- Sporting goods
- Tires and car care products
- Toys
- Seasonal products
- Office supplies
- Clothing
- Furniture
- Household items
- Jewelery
- pharmacies
- Optics
- Gas
The company successfully sells warehouse memberships for customers and entices customers with low prices for its products compared to traditional grocers and other retailers.
Learn more: What is a Dividend Aristocrat?
Pros and Cons of Investing in Costco
Let’s take a look at the pros and cons of investing in Costco Wholesale Corporation before making a final decision on whether you might want to invest in the company.
Pros
First, the benefits of investing in Costco:
- Moderate purchase ratings: Most Wall Street analysts have issued moderate buy recommendations for the stock, meaning analysts believe the stock will likely outperform the overall market.
- Margin: It’s worth noting that the company’s adjusted gross margin declined 17 basis points year over year to 11.05% during the first few months of fiscal 2022. It also reduced other expenses due to other expenses to 9.04% of revenue, decreased from 9.85% in the same period last year and operating margin increased from 3.33% year-over-year from 3.42% to 3.42%.
- Sales growth: Costco’s sales have shown consistent growth for more than two years. Net sales for the quarter increased 16.1% to $50.94 billion from $43.89 billion in the prior year and up 16.4% in the first 24 weeks to $100.35 billion, an increase of $86.23 billion last year.
- Ratings higher than competitors: Let’s take a look at Costco Wholesale vs. Walmart, one of Costco’s top competitors. Costco has a net margin of 2.60% compared to Walmart’s 2.36%. Costco’s return on equity (by 29.71%) also beat Walmart’s return on equity.
- dividends: Costco Wholesale pays an annual dividend of $3.60 per share and has a dividend yield of 0.7%. In comparison, Walmart pays an annual dividend of $2.24 per share and has a dividend yield of 1.7%. Costco Wholesale distributes 28.3% of its profits in the form of dividend. Walmart pays out 44.7% of its profits in the form of dividends. Both companies have healthy payout ratios and can cover their dividends for the foreseeable future.
- Just about perfectly recession proof: The warehouse salesman is practically recession-proof and continues to grow its sales despite the pandemic and the ensuing inflationary environment, most likely due to that clingy membership fee. In addition, the company is using its buy-in-bulk-to-money mantra to its advantage — it can both counter the threat of inflation and offset rising costs with membership revenue it collects.
cons
Let’s look at the cons:
- High price-earnings ratio (P/E): Costco’s P/E ratio was 39.71 on Sept. 16, much higher than the entire S&P 500. The P/E ratio refers to the ratio between a company’s stock price and the company’s earnings per share and indicates what the market will pay a company’s stock based on its past or future earnings. In any case, it’s a high P/E ratio for an established company, and most companies in Costco’s peer group trade lower than the company.
- overrated: Costco trades at a high valuation compared to its competitors. In short, it risks being seriously overvalued. An overvalued stock has a price that is not justified by its earnings prospects and trades at a price that is unjustified and significantly higher than that of other companies comparable to the company in question. The P/E ratio can indicate whether it is overvalued or not. The stock itself is trading at a rapid pace compared to Walmart, which trades at 17 times future earnings and Target, which trades 11 times future earnings.
Learn more: What are Dividend Kings Shares?
Is Costco Wholesale Corporation a Dividend Opportunity?
Costco Wholesale Corporation handles disruption well. Despite rising prices due to inflation, serious supply chain problems, and other ills affecting the overall economy, Costco has managed to insulate itself from these problems to some extent because of its membership model, which forces people to return time and time again. to come.
Now, can you list some key reasons why you might want to use Costco as your next dividend investment? Before you start, review the pros and cons of individual dividend stocks before investing. Before hitting the “buy” button, do in-depth research, especially if you’re picking individual stocks. Even looking at stocks with a positive history, such as Costco Wholesale Corporation, can save you a lot of money in the long run.
Janice has been with businesskinda for 5 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider businesskinda team, Janice seeks to understand an audience before creating memorable, persuasive copy.