Costco has a quiet public relations strategy that keeps it in the news without generating controversy.
First, the chain never tells members exactly when it plans to raise the cost of a membership. It generally does that every five years, but its most recent increase happened seven years and two months after its previous price hike.
That gave the chain more than two years of “Will Costco raise its membership prices?” stories and positive media coverage about its decision to push back the increase due to the challenging economy.
In addition to the will-they-or-won’t-they membership price stories, Costco also gets regular coverage on whether it plans to offer a special dividend. Speculation over whether the warehouse club will make a special shareholder payment builds whenever the chain’s cash on hand climbs to levels similar to those when it made past payouts.
CFO Gary Millerchip addressed the special dividend question during Costco’s third-quarter earnings call.
Costco shares its capital spending plans
Millerchip was asked about Costco’s capital spending plans during its third-quarter earnings call.
“Our number 1 priority, of course, is to keep investing in the business to drive growth. And you heard me share in the prepared remarks, we are really focused on accelerating new warehouses, remodeling warehouses where we have the opportunity to really expand capacity and support continued growth,” he said.
He also noted that the company plans to invest in its Kirkland Signature (KS) house brand.
“We are also doing some investments in manufacturing capabilities where they can support KS growth, things like expanding hot dog capacity and coffee roasting, some of these areas,” he added.
Millerchip also addressed the special dividend issue.
“We are in a position as you mentioned where we continue to generate excess cash beyond those priorities, and we believe that at our current valuation, special dividend is typically the most effective way to return excess cash without giving up the flexibility to keep investing in growth where we see opportunities to do that,” he said.
The CFO, however, made it clear that while Costco’s cash-per-share has hit $45, that’s not the only standard for issuing a special dividend.
“It is important to remember the last time we did a special dividend, the stock price was materially lower than it is today,” he said. “So to be at a similar yield, I should say, our cash would need to be at a higher level than it was at the last special dividend.”
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Costco traditionally gives cash back to investors
While many companies pay a regular dividend to shareholders, special dividends — a sort of bonus, expected payment to people owning its stock — are rare.
“A special dividend is a non-recurring distribution of company assets, usually in the form of cash, to shareholders. A special dividend is usually larger compared to normal dividends paid out by the company and is often tied to a specific event like an asset sale, corporate restructuring, spinoff, or other windfall-generating event,” according to Investopedia.
Costco has offered special dividends when its cash-on-hand justifies the payment, not because of the special reasons most companies use.
“It’s part of our DNA,” former CFO Richard Galanti said in a fourth-quarter 2023 conference call with investors.
A special dividend could push Costco stock higher.
William Blair analysts told Investopedia they see Costco as “well suited to find investor support as a consistent, defensive consumer name in an increasingly uncertain consumer environment.”
Costco is “well-positioned to potentially offer a special dividend or increase its buybacks, which could boost the stock,” the analysts added.
Costco’s special dividend history
- 2024 special dividend, $15.per share: Costco Wholesale Corporation declared a special cash dividend of $15 per share, payable Jan. 12, 2024, to shareholders of record Dec. 28, 2023. This is one of the largest special dividends in the company’s history, according to Costco Investor Relations (IR) and an 8-K filed with the SEC.
- 2020 special dividend, $10 per share: Costco’s Board of Directors declared a special cash dividend of $10 per share payable Dec. 11, 2020, to shareholders of record Dec. 2, 2020, according to a company press release and an SEC 10-Q filing.
- 2017 special dividend, $7 per share: Costco declared a special cash dividend of $7 per share, payable May 26, 2017, to shareholders of record May 10, 2017, according to Costco IR.
- 2015 special dividend, $5 per share: Costco declared a special cash dividend of $5 per share, payable Feb. 27, 2015, to shareholders of record Feb. 9, 2015, according to another Investor Relations press release.
These special dividends have been paid irregularly but consistently every few years when Costco has excess cash and strong operating results, according to a Motley Fool analysis.
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