The Company in a Nutshell
- Costco built a unique business model, combining membership and treasure hunting features.
- Costco’s warehouses average about 146,000 square feet and over 75% of its locations offer fuel.
- About 6% of Costco’s global sales come from their e-commerce channel.
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What the CEO said: What we say:Investment Thesis
COST has a unique business model where members are convinced that they have obtained the best prices on their baskets of goods. It is a convenient one-stop-shop and is also one of the few retailers to claim that all is going well without the statement stretching the truth. COST has proven to be a resilient retailer as its intense value perception and treasure-hunt approach spur customer traffic, spending, and membership renewal rates, and has positioned the company for strong long-term growth. COST reported 90%+ membership renewals in the US and 90% worldwide. With such a loyal customer base, an investor can expect COST to overcome economic difficulties without too much strife. We can see that the dividend triangle is reaching a plateau for revenue growth and EPS. There is no concern as it’s only a reflection of the economy slowing down.Dividend Triangle
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Potential Risks
COST isn’t cheap. In fact, an investment in Costco is an investment in a company that will continue to grow. An investor must be ready to pay a premium for it. With the hype surrounding essential businesses over the pandemic, Costco rallied to all-time highs. COST’s main market is the US. It’s obvious that many countries don’t have high enough populations to support Costco’s required volume of consumption. At some point, growth perspectives could slow in a global recession. Management recently issued warnings about price increases due to inflation. While COST can fare well in competing with AMZN, this competition may eventually affect their margins. With high inflation, competition will become a margin game.
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Dividend Growth Perspective
COST has a low yield (~0.55%), but its growth rate is phenomenal. Over the past 5 years, it raised its dividend by 75%! In the same period, the company also issued 2 special dividends. COST’s membership model has helped the company generate lots of cash. In other words, expect strong high single-digit dividend growth in the coming years. The company boasts a very strong dividend triangle and as such it is a keeper, but if you want to invest, be prepared to pay a premium. In Q2 2022, COST declared a very strong dividend increase of 14%, from $0.79 to $0.90. The company “did it again” in 2023 with an increase of 13% from $0.90 to $1.02. Costco ended the year with a special dividend of $15 per share, congratulations!
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Valuation
(Data for `ddm_recent_annual_dividend` field are missing to build DDM tables)
Video Tutorial: How to Read the Stock Cards DDM Valuation
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- All financial metrics are updated weekly.
- The DSR PRO rating and Dividend Safety Score are updated quarterly.
- The analysis (investment thesis, risk potential, dividend growth perspective and DDM calculation) is reviewed every 6 months.
- The PDF format includes only comments (no metrics) and is reviewed every 6 months.