Although the dividend raise declared by Costco Wholesale (COST 2.65%) wasn’t surprising, it did inject a fresh surge of bullishness into its stock. On Thursday, the big retailer’s stock price rose nearly 3% on the back of the news, easily topping the 0.1% bump of the S&P 500 (^GSPC 0.13%) that trading session.
Another year, another dividend raise
Just after market close on Wednesday, Costco declared that its upcoming quarterly distribution would be $1.30 per share, which is a sturdy 12% higher than the $1.16 it paid out previously. This is to be dispensed on May 16 to investors of record as of May 2. At the most recent closing share price, the new amount would yield 0.5%.
That’s well under the current 1.4% average of S&P 500 index component stocks. Yet we can safely say that most investors don’t consider Costco to be an income stock; rather, it’s one of the rare retailers that habitually posts encouraging growth in key fundamentals, and is a unique and popular destination for millions of shoppers.
Nevertheless, management is clearly trying to add spice to the stock by making generous dividend raises on the regular. It’s pulled the lever on annual hikes for more than 20 years running, and the previous bump was a 14% lift to the aforementioned $1.16 per share.
A small sweetener, but sweeter regardless
So the dividend isn’t the motor that drives Costco stock, but of course as investors, we always welcome a few more coins in our pockets. With Costco continuing to do well as a company, we should fully expect more double-digit hikes in the coming years. Although that isn’t reason alone to buy the stock, it makes owning it that much more satisfying.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.