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The wait is finally over. Costco Wholesale (NASDAQ:COST) announced a $30-per-share special dividend payable on Dec. 4 to shareholders of record as of Nov. 24.
The cash dividend will cost Costco a staggering $13.3 billion. For context, Coca-Cola paid $8.8 billion in 2025 dividends over four quarterly payments.
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Here's how Costco's latest special dividend stacks up against past payments, and if the consumer staples giant is a buy now.
Costco is no ordinary dividend stock. It has raised its dividend every year since initiating its first payment in 2004. But it also has a track record of paying special dividends when its cash reserves build up on its balance sheet.
The spikes on the orange line in the chart above represent Costco's special dividends. The blue line shows cash and short-term investments, which typically expand leading up to special dividends. Costco has consistently maintained a rock-solid balance sheet and very low long-term debt. So it truly can afford these special cash dividends.
Costco's special dividends have grown in lockstep with its earnings. The latest $30-per-share payment is double Costco's last special dividend from December 2023 and triple the December 2020 payment.
In addition to the latest special dividend announcement, Costco's board of directors has authorized a $4 billion common stock repurchase program that expires in November 2030 and replaces the current $4 billion program, which is scheduled to expire in January 2027. Costco has repurchased $3.1 billion in stock under its current program since it was adopted in 2023.
Investors may be wondering why more companies don't adopt a capital return program like Costco's. After all, the cash dividend isn't taking away from Costco's operations or long-term investments. Rather, it's simply cash that is left over.
Most companies prefer to use excess cash to accelerate growth, pay down debt, engage in mergers and acquisitions, or simply repurchase stock. Stock buybacks are incredibly tax-efficient for corporations because they are subject to a mere 1% nondeductible excise tax. They also reduce a company's outstanding share count, which accelerates earnings-per-share growth. So companies like using buybacks as a tax-effective way to make the stock a better value.
The biggest drawback of one-off special dividends is that they often face double taxation, whereby the company uses after-tax earnings to distribute dividends to investors. In turn, investors will need to pay taxes on dividend income if the stock is held in a taxable account. Quarterly dividends are also "double taxed." But a steadily rising dividend drives investor loyalty by providing reliable passive income and an incentive to hold a stock over the long term. For example, Coca-Cola has raised its dividend for 64 consecutive years, which can be particularly appealing for risk-averse investors or those looking to supplement retirement income.
Costco also pays a $1.47-per-share quarterly dividend -- but that's only good for an annualized yield of just 0.6% based on the stock price at the time of this writing of $1,077.66. Throw in the $30 special dividend, and that's an annualized payout of $35.88 -- good for a yield of 3.3%. So Costco can effectively become a high-yield dividend stock during special dividend years. But most of the time, it yields even less than the S&P 500 (SNPINDEX:^GSPC) -- which yields 1.1%.
Special dividends have their flaws. But for Costco, the strategy makes perfect sense.
Costco isn't the kind of company that can plug excess cash toward a highly innovative idea. It's a beautifully boring business that generates steady cash flows from membership fees, merchandise, and services. Costco regularly expands its store count each year, but around 85% of stores are in North America. Costco is expanding internationally, but through a cautious and regimented approach rather than a high-octane growth strategy.
In sum, a special dividend is tailor-made for a company that prefers to grow organically rather than make splashy acquisitions, has predictable cash flows, and carries very little debt.
Costco's latest dividend is sizable. And it's understandable why investors may be enamored with the idea of buying Costco and booking a guaranteed $30-per-share dividend, with the proceeds directly deposited into their brokerage accounts. But buying Costco purely for its special dividend is a bad idea.
Stocks can fall on the ex-dividend date because the business is objectively less attractive to new investors who aren't receiving the dividend and are now buying a company with less cash on its balance sheet.
A better reason to buy Costco is if you like the company's fundamentals and want to own it over the long term. Costco's steady earnings growth, paired with a highly loyal customer base, makes it arguably one of the best-run companies in the world. The only issue is that the market already knows that.
Costco's stock price is up over sevenfold in the last decade -- easily outpacing the S&P 500 and Nasdaq Composite (NASDAQINDEX:^IXIC). But Costco's earnings haven't grown nearly as fast. As a result, Costco's price-to-earnings (P/E) ratio has ballooned to a nosebleed level of 51.4 -- making blue chip dividend stock Coca-Cola look like a bargain at 28.6 times, even though that's still a premium to the S&P 500's 24.9 P/E ratio.
Buying Costco stock before Nov. 24 could make sense for investors willing to pay a premium price for an ultra-high-quality, safe stock. But I think investors are much better off buying more reasonably valued dividend stocks or beaten-down growth stocks.
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Daniel Foelber 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.
Costco Just Declared a $30 Special Dividend. Is It Reason Enough to Buy the Stock Before Nov. 24? was originally published by The Motley Fool
