Costco Wholesale Corporation COST just gave shareholders a reason to smile, announcing a 12.1% increase in its quarterly dividend. The move reinforces its appeal among investors looking for both steady income and consistent growth. Based in Issaquah, WA, Costco’s long-standing track record of dividend payouts backed by healthy fundamentals provides a hedge against any odd swings in the stock market.
The dividend boost, from $1.16 to $1.30 per share, underscores Costco’s robust cash flow and disciplined financial management. It also signals management’s confidence in the company’s long-term earnings trajectory. The quarterly dividend is payable on May 16, 2025 to stockholders of record at the close of business on May 2, 2025.
We believe that such strategic steps not only drive shareholder value but also raise the market value of the stock. Through these dividend increases, companies persuade investors to either buy or hold the scrip.
But with the stock already trading near its 52-week high and economic uncertainty still lingering, many investors are now asking whether the dividend hike signals more upside or if the good news is already priced in. However, for those considering a fresh entry into Costco stock, it’s essential to weigh the recent rally, valuation and fundamentals before investing.
Costco Stock Performance
Costco stock closed at $967.75 yesterday, positioning it 10.2% below its 52-week high of $1,078.23, reached on Feb. 13, 2025. Shares of Costco have risen 36.1% in the past year, outpacing the industry's growth of 18.2%. Costco has outperformed its close competitors, such as Dollar General Corporation DG, Dollar Tree, Inc. DLTR and Target Corporation TGT. Shares of Dollar General, Dollar Tree and Target have declined 38.6%, 40.1% and 45.7%, respectively, in the past year.
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The stock is trading below its 50-day moving average, potentially reflecting investor caution or a temporary pause in momentum.
Costco Trades Below 50-Day Moving Average
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Costco’s Rich Valuation Leaves Limited Room to Run
Costco is trading at a significant premium to its industry peers. COST's forward 12-month price-to-earnings ratio stands at 50.72, higher than the industry’s ratio of 31.59 and the S&P 500's 19.85. The stock is also trading above its median P/E level of 49.77, observed over the past year.
Costco is trading at a premium to Dollar General (with a forward 12-month P/E ratio of 15.74), Dollar Tree (13.70) and Target (9.91).
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Costco’s Strong Fundamentals Support Long-Term Stability
Costco’s resilient business model, centered around a membership-based structure, continues to drive growth. The company benefits from high membership renewal rates, efficient supply chain management and bulk purchasing power, which enable it to offer competitive pricing. The renewal rate remains high, at 93% in the United States and Canada, and 90.5% globally. This robust model has allowed Costco to maintain a decent performance, even in the face of economic downturns.
The warehouse operator ended the second quarter of fiscal 2025 with 78.4 million paid household members, up 6.8% from the prior year. Executive memberships, a more profitable category for Costco, grew 9.1% year over year to reach 36.9 million, now accounting for 47.1% of all paid members and driving 73.8% of worldwide sales. Membership fee income rose 7.4% year over year during the second quarter. The recent membership fee increase contributed about 3% to membership fee income, with most benefits expected to materialize in the final quarter of the current fiscal and the first quarter of the next fiscal year.
In March, Costco continued to show strong comparable sales growth, reflecting its ability to attract value-conscious shoppers with competitive pricing and quality offerings. For the five weeks ended April 6, 2025, comparable sales rose 6.4%, following increases of 6.5% and 7.5% in February and January, respectively. E-commerce comparable sales saw an impressive jump of 16.2%, or 17.5% when adjusted for gasoline prices and foreign exchange fluctuations. As a result, net sales for March increased 8.6% year over year to $25.51 billion.
Costco continues with its store expansion, widening its reach. With only one warehouse opened in the second quarter, the company is accelerating expansion through the remainder of fiscal 2025, aiming for 28 new openings, including 25 new warehouses and three relocations.
With cash and cash equivalents (including short-term investments of $802 million) of $13,158 million at the end of the second quarter, Costco looks quite comfortable from the liquidity point of view. Management allocated $1.14 billion to capital expenditures in the second quarter and has outlined a substantial $5 billion expenditure plan for fiscal 2025. These strategic investments underscore Costco's commitment to long-term growth.
Costco’s Earnings Estimates See a Positive Shift
The Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past seven days, the consensus estimate has risen by a penny to $17.95 for the current fiscal and by a couple of cents to $19.75 for the next fiscal. These estimates indicate year-over-year growth rates of 11.4% and 10%, respectively. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
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How to Play Costco Stock Post Dividend Hike?
Costco’s 12% dividend hike shows the company’s strong position and focus on rewarding its shareholders. While the stock looks a bit pricey, Costco’s steady business model, loyal membership base and solid growth outlook still make it an attractive long-term pick. For current investors, it remains a solid hold. However, new buyers might want to wait for a better entry point before jumping in. Costco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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