Reflecting a robust fiscal 2020 performance and strong monthly sales growth, the board of directors at Costco Wholesale plans to reward shareholders with a $10-per-share special dividend.
Costco said late yesterday the special dividend aggregate payment will be about $4.4 billion and be funded through existing cash. Common-stock shareholders of record as of Dec. 2 will be eligible for the dividend, to be paid on Dec. 11.
Issaquah, Wash.-based Costco has declared special dividends only a few times in recent years, including per-share dividends of $7 in May 2017, $5 in February 2015 and $7 in December 2012.
In 2020, Costco paid a 65-cents-per-share quarterly cash dividend in February and then increased it 70 cents for quarterly payments made in May, August and November.
“This special dividend, our fourth in eight years, is our latest step to reward shareholders,” Richard Galanti, executive vice president and chief financial officer, said in a statement. “Our strong balance sheet allows us to pay this dividend, while preserving financial and operational flexibility to continue to grow our business globally. Costco will continue to be in a financial position to take care of our employees, enhance the value of the Costco membership and create shareholder value over the long term.”
According to Jefferies analyst Stephanie Wissink, the market had speculated about a special dividend coming from Costco but wasn’t sure of the timing. She said in a research note Monday evening that the special dividend reflects Costco management and board’s confidence in the retailer’s current cash balance and future cash-flow generation.
“With little need to pursue large M&A, Costco has focused on cash givebacks as a complementary method to drive incremental shareholder value,” Wissink wrote. “The company pays a regular dividend ($2.80; 0.74% yield) that it consistently raises 10% to 15% a year (8% this year due to COVID). The company actively repurchases shares and has paid three prior special dividends ($7 in 12/12, $5 in 2/15 and $7 in 5/17) at an every 2-year to 2.5-year cadence. As such, today’s announcement is not a huge surprise and might have come sooner if not for COVID.”
For its 2020 fiscal year ended Aug. 30, Costco posted gains of 9.3% in net sales and 7.7% in comparable sales, with e-commerce sales rising nearly 50%. Net income came in at $4 billion, or $9.02 per diluted share, versus $3.66 billion, or $8.26 per diluted share, in 2019.
The warehouse club chain followed that up with increases of 16.9% in net sales and 15.5% in comp sales for September, and earlier this month the company reported gains of 15.9% in net sales and 14.4% in comp sales for October. E-commerce sales growth topped 90% year over year in both months.
“Costco exited fiscal 2020 with a strong $5.7 billion ($13/share) net cash position. Even after the $10 special dividend ($4.4 billion total), we estimate Costco will have $1.3 billion net cash, leaving ample flexibility to lever if opportunities arise,” Wissink said in her report. “That said, we believe the company’s first priority remains growing the business organically, and we see plenty of tailwinds with Costco’s favorable demographics, opportunity for unit growth, superior merchandising, and ongoing share shift from traditional grocery, department stores and specialty retail to the club channel.”
Overall, Costco operates 802 wholesale clubs, including 558 in the United States and Puerto Rico, 102 in Canada, 39 in Mexico, 29 in the United Kingdom, 27 in Japan, 16 in Korea, 13 in Taiwan, 12 in Australia, three in Spain, and one apiece in Iceland, France and China. The retailer runs e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.