Costco Rises On Special Dividend Of $10; Analyst Sticks To Buy

Shares of Costco Wholesale Corp. gained 2.4% in Monday’s extended trading after the company’s board approved a special cash dividend of $10 a share. The membership-only warehouse club retail chain operator will pay the dividend on Dec. 11 to shareholders of record date as of Dec. 2.

Costco (COST) disclosed that the special cash dividend will incur $4.4 billion in costs to the company, which will be fully funded through its existing cash balance. Meanwhile, the company pays an annual dividend of $2.80 per share with a dividend yield of 0.74%.

Costco’s CFO Richard Galanti said, “This special dividend, our fourth in eight years, is our latest step to reward shareholders. 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.” (See COST stock analysis on TipRanks).

Following the company’s announcement, Oppenheimer analyst Rupesh Parikh reiterated his Buy rating and the price target of $400 (5.3% upside potential) on the stock. In a note to investors, Parikh wrote, “we continue to rank COST as our favorite holiday retail play. Even after this payout, more special dividends are likely on the horizon in coming years. We now expect the company’s ending cash balance at the end of FY22 (August 2022) to total more than $25 per share even after this upcoming distribution.”

Overall, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 17 Buys and 5 Holds. With shares up nearly 29.2% year-to-date, the average price target stands at $386.05, implying a moderate upside potential of about 1.7% to current levels.