Costco Wholesale Co. (COST) stock rose by 5.3 percent as of 1 p.m. Wednesday, after the bulk retailer announced that it will increase its dividend by $3 billion, or $7 a share, and same-sale store sales that beat analysts expectations.
This is the second time Costco increased its dividend this year prior to the “fiscal cliff,” which will result in higher taxes on dividends.
With more than $99 billion in annual revenue and $3.5 billion cash on hand, Costco has more than enough money to pay higher dividend while still investing in new stores, said Kantar Retail analyst to Bloomberg
“It’s a tangible way of rewarding shareholders that avoids the lottery of a share buyback,” said Roberts. “They’ve amassed significant cash reserves, partly due to their success. They have been one of the most successful retailers in the past 20 years.”
Other companies with lots of money and revenue will follow in Costco’s footsteps, said Janney Capital Markets analyst David Strasser to Reuters. “We expect many cash-rich, stable operating companies to follow this trend, along with companies that have high insider ownership.”
Twenty-two analysts rate Costco as hold, buy or strong Buy, while only 3 analysts are bearish on the stock.
Piper Jaffray recently reaffirmed its “overweight,” or buy, rating, as did BMO capital Markets and Janney Montgomery Scott.
Costco’s stock has risen more almost 20 percent from this time last year, in line with comparable companies such as Target and Wal-Mart.
Costco announced that same store sales increased by 6 percent, 0.6 percentage points higher than the average estimate of analysts conducted by Reuters.
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