In spite of the sluggishness in many of the world’s largest economies, there are some companies that are doing well—so well, that they have more money than they can handle. One such company is Costco Wholesale Corporation (NASDAQ/COST), which was just in the news for reporting a substantial $7.00-per-share dividend to shareholders, on top of its regular quarterly dividend. The company just announced strong retail sales in the four weeks ended November 25, 2012, and its first fiscal quarter of 2013 experienced a solid 10% increase in revenues.
On the stock market, Costco has been a powerhouse wealth creator over time. You have to imagine that those annual memberships are pure gravy for the company; having to pay a company in order to shop there is such a score. On the stock market, the stock appreciated to $54.00 from $10.00 between 1996 and 2000 on a split-adjusted basis. Then it didn’t do much of anything for the next 10 years. (See “Beat The Market? There’s Only One Way to Do It.”) It’s only in the last year that the company’s stock market price has taken off, while the rest of the U.S. economy is sluggish. This time last year, the stock was worth about $68.00 a share; now it’s at $100.00.
Chart courtesy of www.StockCharts.com
There are some tax reasons for the special $7.00-per-share dividend, but basically, the company is generating more cash than it can handle, so it’s returning some of that money to its shareholders. So many corporations are doing this. Rather than invest in new facilities, equipment, and employees, a company just returns the money to shareholders in the form of dividends or share buybacks. One-time dividends are very advantageous to a company, because they don’t lock it into a new quarterly dividend rate if times get tough.
Discount retailers have been doing great over the last several years. Consumers might not be buying too many high-end suits, but they still need business-casual clothes in the workplace. Companies like Target Corporation (NYSE/TGT), Wal-Mart Stores, Inc. (NYSE/WMT), and The TJX Companies, Inc. (NYSE/TJX) have all been outstanding wealth creators on the stock market in recent years. TJX has doubled on the stock market over the last two years.
With low borrowing costs and very conservative business planning, many large-cap companies have built up huge cash positions. And this is why dividends have been increasing. The outlook for the stock market might not be that strong, but the outlook for dividend-seeking investors remains good.
Earnings growth is flat, but corporate balance sheets are in excellent condition. The stock market is likely to keep moving downward, so long as uncertainty remains regarding the fiscal cliff. As I keep saying, dividends are going to be your only friend in 2013 if you’re a stock market investor. There really isn’t any reason why share prices should go up.
Show Me the Money? Just Ask Costco was last modified: November 29th, 2012 by Mitchell Clark, B.Comm.
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 30, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 30, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)