Costco Wholesale - COST - Stock Price & News | The Motley Fool

However, now with founder James Sinegal retired from the CEO position he remains on the board and the rise of major disruptive rivals such as Amazon NASDAQ: AMZNthe company's business model faces potential threats from numerous directions.

Let's take a look at what allowed Costco to become the juggernaut it is today, but more importantly see whether or not the granddaddy of wholesale warehouse retail deserves a spot in a diversified dividend portfolio such as our Top 20 Dividend Stocks portfolio.

Investors should note that Costco is held in Berkshire Hathaway's portfolio, and you can see analysis on all of Warren Buffett's top dividend stocks here. Founded in in Issaquah, Washington, Costco pioneered the wholesale warehouse retail business model and today operates locations in nine countries on four continents.

While Costco is the world's second-largest retailer by sales behind Wal-Mart NYSE: The company has built up a base of Costco is one of the world's largest sellers of groceries, alcohol, diamonds, electronics, prescription drugs, tires, gasoline and even travel services.

While the company is working hard to expand overseas, the vast majority of sales and operating profits continue to come from its core U. Specifically, the company's membership fees allow it to offer consumers greater discounts on both name brand and its own store brand goods.

In addition, the company is legendary for low turnover in its workforce, courtesy of much higher than average pay and benefits. This also helps to maintain strong brand equity thanks to employees that are happier and offer superior customer service compared to most of its rivals. The combination of excellent service and reasonable prices has helped Costco gain and maintain its strong market share in its home U.

However, in recent years saturation of the U. That's especially true given that the company has increased its investments into expanding store count, especially overseas Canada, UK, Australia, Taiwan, and South Koreawhere consumer taste has indicated that the warehouse wholesale retail business model may become increasingly popular. Management has indeed done a good job in executing on this overseas growth, with constant currency, ex-fuel same store sales i. In fact, in the most recent conference call, CFO Richard Galanti announced that the company plans to open 31 new stores inup from 29 in Numerous Wall Street analysts have criticized Costco for years about its subpar margins, which are courtesy of its company policy of paying employees far above industry standards in both pay and benefits.

That's about double the wage earned by most U. While this unique style of "socially responsible" capitalism is relatively new to the U. For example, according to MIT Sloan School of Management Professor Zeynep Ton, longer tenured workers who are happier, feel more appreciated and less worried about making ends meet make for a far better customer experience.

At Costco, you see a huge line that disappears in minutes. And indeed it does appear that Costco's "treat employees well" policy is working, with sales per employee nearly double that of Wal-Mart's competing Sam's Club warehouse stores and resulting in high and consistently growing returns on capital.

In other words, from Costco's perspective, paying employees well in order to retain them for the long term just makes good business sense. And as you can see above, while Costco's operating margin may be low, it's gradually improving over time. This is courtesy of the company's laser-like focus on efficiency. For example, unlike the average rival store, where around 60, items are sold, the average Costco sells just 3, goods.

However, thanks to its enormous sales volumes, as well as buying direct from manufacturers, Costco is able to obtain excellent wholesale prices along the lines of Wal-Mart and Kroger NYSE: This is especially true given the rise of online retail competition, which has yet to harm its business as it has so many other retailers. Costco's strategy of selling numerous loss leaders, such as groceries and gas, to attract customers and make up for it with higher margin goods, has helped to insulate the retailer from the threat of Amazon.

Overall, Costco is a competitively advantaged firm thanks to its economies how do i buy tritax big box shares scale, intentionally limited product selection, quality in-store experience, and loyal base of shoppers who provide high-margin, recurring membership fee revenue.

While Costco's best days of domestic growth are likely over, it is still a wonderful business that should be around for decades to come. While Costco's consistent growth over time has certainly benefited long-term investors and the company has shown an exemplary dedication to growing its dividend, there are certain important risks to keep in mind.

First, remember that Costco's earnings growth thesis is largely predicated on continued growth of its membership base, especially upgrading as many people as possible to its executive level. That strategy is predicated on consumers continuing to value their membership, largely for the perceived long-term dr pepper stock market savings.

However, despite its low prices, cost savings aren't guaranteed. According to organizational psychologist Billie Blaire, "membership fees, wastage from overbuying produce and suchthe necessity to buy in quantity canned goods that sit on shelves and have to be discardedetc. In addition, as Costco expands more overseas it is counting on consumers in other countries finding the bulk warehouse shopping experience convenient enough to choose it over alternatives such as Amazon's Prime Now online service, costco stock market value offer hour delivery in certain markets.

Costco investors are essentially betting that, in the long term, the suburban-based it's hard to build giant warehouses in urban areasbuy-in-bulk shopping model will remain popular not just with U.

If this assumption proves to be incorrect, Costco's long-term growth rate will almost certainly disappoint investors and cause the stock to underperform more on COST's current expectations later. Online retail could also pose a threat to the company's long-term growth. While Costco is working towards strengthening its online presence to maintain market share, keep in mind that its warehouse and bulk good focused business model is less online-friendly than rivals such as Wal-Mart and Target NYSE: Finally, we can't forget the fact that as Costco diversifies overseas it faces ever higher currency risks.

Right now the earning money by writing poems dollar, a result of superior economic growth in the U.

Expanding international operations also pose operational risks and could weigh on overall company profitability until they scale up to maturity. Our Dividend Safety Score answers the question, "Is the current dividend payment safe? Dividend Safety Scores range from 0 to and conservative dividend investors should stick with firms that score at least Since tracking the data, companies cutting their dividends had an average Dividend Safety Score below 20 at the time of their dividend reduction announcements.

We wrote a detailed analysis reviewing how Dividend Safety Scores are calculated, what their real-time track record has been, and how to use them for your portfolio here. Costco has a Dividend Safety Score of 94, indicating that its dividend is extremely safe and dependable. As you will see, Costco has a good track record of maintaining a conservative EPS and free cash flow FCF payout ratio, providing a high level of dividend security.

While occasionally increased growth investment causes a spike in these ratios see belowover the long term the company's payout is very well covered by free cash flow. Costco's business is also recession-resistant. These defensive qualities make Costco's dividend safer and the company's consistent free cash flow generation, which is needed to sustainably pay dividends, further reduces its risk profile.

COST Historical Prices | Costco Wholesale Corporation Stock - Yahoo Finance

As importantly, Costco boasts a pristine balance sheet, courtesy of its net cash balance i. This allows the company to keep borrowing costs very low as low as 1.

A strong balance sheet improves Costco's financial flexibility and allows for continued growth of global store count and the dividend. Our Dividend Growth Score answers the question, "How fast is the dividend likely to grow? Scores of 50 are average, 75 or higher is very good and 25 or lower is considered weak.

COST - Costco Stock quote - fadukuvo.web.fc2.com

Costco has a Dividend Growth Score of 81, meaning that dividend lovers can likely expect Costco's solid history of double-digit dividend growth to continue for many years to come. Costco didn't start paying regular dividends until Since then, Costco has raised its dividend every year, proving itself dedicated to strong, consistent growth of its payout even during the financial crisis. This gives me confidence that Costco's dividend growth prospects are relatively recession-resistant given its low payout ratio.

The company last raised its dividend by That easily translates to double-digit dividend growth for the foreseeable future. Just keep in mind that Costco's current yield of 1. Costco's superb business model and excellent growth track record mean that the company's stock generally trades at a high premium. If you already own Costco shares, it probably makes sense to wait for a better time to add to your position, such as after a disappointing earnings announcement or the next inevitable, if unpredictable, market correction.

Costco's unique membership-focused business model, long track record of operational excellence, and consistent dedication to strong dividend growth means that, from a fundamental perspective, it represents an excellent long-term dividend growth stock. That being said, the current valuation is so high as to greatly increase the risk of owning this stock, at least in the short to medium term.

Therefore, it's probably a good idea to add Costco to one's watchlist and wait for a more attractive buying opportunity. REITs Dividend Ideas Dividend Strategy Dividend News Dividend Quick Picks Editor's Picks. A World-Class Retailer And Superb Dividend Growth Stock Jan. Dividend investing, dividend growth investing, long-term horizon, research analyst.

Business Description Founded in in Issaquah, Washington, Costco pioneered the wholesale warehouse retail business model and today operates locations in nine countries on four continents. Want to share your opinion on this article? Disagree with this article? To report a factual error in this article, click here. Follow Simply Safe Dividends and get email alerts.