Sometimes, investors ignore successful stocks for lack of a promising growth profile. Perhaps the appearance of cash flow Also Stable or, with a market capitalization of billions, the company seems too big for investors to imagine further growth. Presumably an organization operating in a low-margin industry and, paradise forbids, pays dividends, indicates that it is not really in a growth position.
Stock market prices can be misleading in this way. Companies with deep competitive advantages and extreme scales are always rewarded steadily and peacefully for their dominance. Take the retailer Costco (Nasdaq: COST), For example, which has all the listed strikes against it. Wholesale Club Shopping – is a huge, dividend-paying stallwart in the region, generating low-single-digit profit margins. In fact, over the last several years, Costco has averaged 3% of the plant operating operating margin and net profit of only %%.
However, with a current market capitalization of 3 153 billion, Costco has surpassed many of its partner “megacap” stocks in recent years, many of them from high-growth industries.
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Note that Costco’s total returns have more than doubled over the S&P 500 index over the last 10 years – an average of 65% of total returns annually during this period. The stock currently trades at about 37 times its annual earnings.
What is the reward for investors in this loose dispute? Certainly, the advantage of a large-scale company (only WalmartOf Sam’s Club and BJ’s wholesale club Is wide enough to provide significant competition) provides support for its premium valuation.
Importantly, while its margins may be anemic, at Costco’s size, fragile profitability still translates into large profits in dollar-based terms. In the past 12 months, the shopping club’s Bemath has earned 1 1,161 billion in sales, allowing it to book આવક 7.7 billion in net income and nearly 7 7 billion in operating cash flow.
But perhaps Costco has been praised so quickly over the years, its double promise of enormous corporate profits and relative security. For many investors, the company is a proven, protective consumer staples play that helps acne risk to the overall portfolio.
Image Source: Getty Images.
The profit and security base is definitely out in 2020, as Costco’s stocks have returned 19% of the total returns as of this writing, and the S&P 500 is close to three times the 7.5% of today’s total returns.
In other words, during the epidemic – the final testing of consumer goods stocks – Costco has proven its subtlety. The retailer will report its financial fourth-quarter earnings earlier this month, but it does release monthly sales figures, so we already have a bird’s eye view of the quarter. On the revenue side, the results look overwhelming:
| Metric | June | July | .Gust |
|---|---|---|---|
| Total company sales | 11.5% | 13.2% | 13.2% |
| Sale of e-commerce mercer | 85.8% | 75.3% | 101.9% |
| Comparable sales | 14.4% | 15.8% | 14.5% |
Data source: Costco bulk.
Note that the increase in double-digit sales and comparable sales is driven by Covid-19-powered e-commerce sales, which at one time were considered Costco’s Achilles heel against retail competitors.
Of course, none of this means that Costco is risk-free, or that it won’t be stripped of its latest results. For example, the epidemic did not surprisingly produce as many new members as one might expect. The company’s membership revenue in the third quarter of the fiscal year increased by only 5% over the same period of the year. Compare that to BJ’s wholesale club, which has improved its membership revenue by almost 11% in its most recent quarter.
Despite the still slower membership growth, Costco can unlock the benefits provided by its balance sheet strength and supply chain capabilities. For example, CFO Richard Galanti said in Costco’s latest earnings that four years ago U.S. Sales of the big-ticket “White Goods” rose from $ 20 million to 600 600 million last year. Thanks to COVID-19, sales of white goods are set to cross 1 1 billion this year. Investments such as the મા 1 billion purchase of the last mile delivery specialist Innoval’s company earlier this year will only increase its ability to generate meaningful revenue from this market opportunity.
In short, Costco’s business model will provide enough fuel for a stable, growing dividend for the foreseeable future. Although its 1% dividend yield seems low, this is due to the appreciation of the stellar stock. As my colleague Jeremy Bowman explains, Costco will resume some of the special dividends it has paid in recent years, but its regular quarterly dividends should pay a handsome return nonetheless: they have grown at a compound annual growth rate (CAGR). 13% in last 10 years
Finally, Costco’s low payout ratio of 31% indicates sufficient capacity to maintain its double-digit dividend CAGR. While stability and growth in mild as well as rocky conditions make Costaco an ideal dividend stock, income investors should not hesitate to add to their holdings.
