Here's what I do with Costco's $15 special dividend

Image courtesy of Costco Wholesale

Image courtesy of Costco Wholesale

One of the largest retailers just shared some great news. A special dividend of $15 will be paid to shareholders. This is certainly a welcome turn for Costco wholesale (NASDAQ: COST) investors, which equates to a dividend yield of approximately 2% at the current share price. But what should investors do with this impressive dividend? Well, you have several options. Let’s look at them.

Reinvesting was a brilliant strategy

The most important decision investors have to make when paying a dividend is whether to pocket the money or reinvest it in the company. By pocketing it, you want to use it for another investment or perhaps spend it. Regardless, if you don’t reinvest it now, you probably won’t use it to buy Costco stock later.

But buying Costco stock with its special dividend was a winning strategy. This isn’t the first and probably won’t be the last time Costco pays a special dividend. Costco issued special dividends in 2012 ($7), 2015 ($5), 2017 ($7), 2020 ($10), and now $15 in 2023.

So what would have happened to your money if you reinvested your dividend in Costco versus the market for those payouts?

Dividend year

Payout

Today’s value when investing in Costco

Today’s value when investing in the S&P 500

2012

$7

$56.62

$28.16

2015

$5

$25.95

$13.21

2017

$7

$28.13

$15.36

2020

$10

$17.95

$13.51

Data source: YCharts.

As you can see, reinvesting the dividend in Costco stock was a fantastic strategy. But even if you’re not a Costco shareholder, you can still get involved. The ex-dividend date of the special dividend is December 27, 2023. This means that you will receive the dividend as long as you own shares when the market closes on that day.

But that was just part of Costco’s earnings release; There’s also Costco’s revenue to consider.

Costco shares are anything but cheap

In the quarter that ended November 26, Costco’s sales rose 3.8%, which isn’t anything spectacular. One reason for this slow growth is that Costco is struggling with difficult year-over-year comparisons for high-priced items (like laptops and televisions). These big box sales fell 20% online and 17% in store. These are difficult comparisons, but they will disappear in a few months as current consumer trends intersect.

The story goes on

Still, Costco’s earnings per share (EPS) rose from $3.07 to $3.58 – a 17% increase. That’s above-market growth, making Costco a worthwhile investment.

One thing many investors are concerned about right now is Costco’s premium valuation. At 48 times trailing earnings and 43 times forward earnings, Costco is one of the more expensive stocks on the market.

Cost PE ratio chartCost PE ratio chart

Cost PE ratio chart

However, one factor that is likely to lead to a drop in rating is the announcement of an increase in membership fees. It is unknown when Costco will do this, but management has stated that it will. This will mean a huge boost in revenue as membership fees are pure profit.

So should investors buy Costco shares now? I would say there hasn’t been a bad time to buy Costco stock in the company’s history. Even though the stock is far from cheap, that hasn’t stopped it from beating the market over the long term. Therefore, I think investors are still comfortable building a position or reinvesting their dividends in Costco stock.

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Keithen Drury holds positions at Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

Here’s what I do with Costco’s $15 special dividend, originally reported by The Motley Fool


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