Costco Wholesale Corporation (NASDAQ: COST) continues to generate double-digit growth in revenues and earnings, which is permitting the company to return significant cash to investors. It operates 533 warehouses in the United States – with extensive penetration in Puerto Rico, Canada, Mexico, the United Kingdom, Japan, and Australia. The company’s strategy of expanding its global presence combined with strengthening its e-commerce websites in developed markets are the biggest catalysts for financial growth.
Investors and market pundits are showing confidence in future fundamentals of Costco amid extensive global presence and the strategy of entering new markets.
“Over the past several years, COST has grown its operations within Australia successfully and now has ten locations with plans to further expand the footprint over time,” Oppenheimer says.
Its strong cash generation has also been offering a room for high dividend hikes. The company has increased its dividends at a double-digit rate over the past 14 successive years; the average dividend growth in the past ten years stood around 15%. The company is likely to make a double-digit dividend increase at the end of the first quarter, which would also offer support to its share price performance.
Investors are likely to enjoy share price appreciation. Its share price rose close to 90% in the past five years, thanks to investor’s confidence in its financial growth, dividends, and future fundamentals.
Costco shares are currently hovering slightly below from all-time high of $245. Its shares have upside potential considering the financial outlook and the expected dividend growth. Indeed, some market experts expect a special dividend this year due to strong cash generation potential.
The CEO says, “We still continue to generate a lot of cash in excess of our CapEx and in excess of roughly $1 billion annual dividends that is really historically about 13% a year.”
The company has generated almost $2.1 billion in operating cash flows in the latest quarter compared to capital investments of $700 million. Thus, the company was left with $1.4 billion in free cash flows when its quarterly dividend payments stood around $500 million. The huge gap in free cash flows and dividend payments would offer a significant room for a dividend increase in 2019.
On the whole, Costco appears like a safe stock for the long-term investors who are seeking steady growth in share price along with strong growth in dividends. Its business strategy and penetration in international markets are among the biggest catalysts for the increase in share price and dividends.