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Costco Wholesale (NASDAQ: COST) has been a winning stock for investors mainly due to capital appreciation. In the past five years, the share price has soared 110% (as of Oct. 8). The market certainly appreciates the company's steady performance, regardless of macro or industry conditions.
Investors should also pay attention to the passive income stream. The dividend yield of 0.62% isn't exciting on its own. But history says that a $10,000 investment in this retail stock could generate this much income by 2031.
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Costco currently pays a quarterly dividend of $1.47 per share, translating to an annualized total of $5.88. That $10,000 investment would bring in just $62 in yearly income now.
The dividend payout has historically grown. In the past five years, it has risen by 86%. This is extremely encouraging. Over the last half-decade, the macroeconomic layout has been anything but stable. The COVID-19 pandemic, supply chain bottlenecks, inflationary pressure, rising interest rates, geopolitical turmoil, and the current uncertain backdrop have been no match for Costco's ability to return capital to shareholders.
No one knows what the future will bring. But let's assume that Costco's historical dividend growth rate keeps pace in the coming five years. This means that in 2031, the business would be paying $10.94 per share in annualized dividends. That same $10,000 would then yield 1.15%.
There is no guarantee that the business will keep increasing its dividend payout at the historical rate, of course. Additionally, there's no guarantee that the payout will rise at all in the future. Investors must keep this in mind before making any decisions.
Costco's fundamentals, however, support an optimistic point of view. This is a high-quality company, no doubt. It seems that not a fiscal quarter goes by that same-store sales aren't rising, demonstrating how durable demand is from loyal customers who want to shop for quality merchandise at extremely low prices. This will never go out of favor.
Profits have consistently increased. From fiscal 2021 to fiscal 2026, diluted earnings per share climbed 84%. There was not a single down year during this stretch.
Upside can also come from Costco's sizable special dividends. The last one was a $15 payout in January 2024. Before that, there was a $10 distribution in December 2020. There is no strict policy on when these special dividends are approved or how much they will be, but they do happen roughly every two or three years.
For what it's worth, though, the company's cash and cash equivalents now total $20.2 billion. That's up from $14.2 billion a year ago. A special dividend would provide a meaningful boost to that initial $10,000 investment.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
History Says This Is the Amount of Yearly Dividend Income a $10,000 Investment in Costco Stock Could Generate by 2031 (Without Even Considering Special Dividends) was originally published by The Motley Fool
