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Costco (COST) Rewards Investors Despite Coronavirus Woes

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Thanks to coronavirus-induced crisis, most companies are now looking at various options to fortify their finances, whether it be through slashing pay or furloughing, cutting non-payroll expenses or curtailing capital expenditures, and even halting share repurchases or pulling back dividends. Amid the crisis, Costco Wholesale Corporation (COST - Free Report) has some good news for its investors.

This operator of membership warehouses recently announced an increase in its quarterly dividend. The board of directors of this Issaquah, WA-based company raised the dividend by 7.7% to 70 cents a share, which is payable on May 15, 2020. Last year in April, the company increased its regular quarterly dividend by 14% to 65 cents.

We believe that such strategic steps not only enhance shareholders’ value but raise the market value of the stock as well. In fact, through these dividend increases companies persuade investors to either buy or hold the scrip. People looking for regular income from stocks are most likely to choose companies that have a track record of consistent and incremental dividend payouts.



 

Few Facts to Note

Even amid such gloom Costco looks quite resilient owing to the company’s business model and products it offers, which have been in demand since the outbreak of novel coronavirus. As consumers stock up food and essentials items in the wake of the pandemic, the company’s overall sales shot up in the March month. While net sales improved 11.7% to $15.49 billion during the month under review, comparable sales rose 9.6%.

Certainly, the company’s growth strategies, better price management, strong membership trends and increasing penetration of e-commerce business have been supporting the performance. Cumulatively, these factors have aided the company in sustaining impressive comparable sales run.

Costco, which shares space with Walmart (WMT - Free Report) , Amazon (AMZN - Free Report) and Target (TGT - Free Report) , has been adopting the omni-channel mantra to provide a seamless shopping experience online and in stores. The company operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia. We note that the company’s e-commerce comparable sales surged 48.3% in the month of March.

To drive its online sales, the company launched CostcoGrocery to deliver non-perishable items to buyer’s home, and expanded same day grocery delivery service in collaboration with Instacart. Recently, it acquired Innovel Solutions, a leading provider of third-party end-to-end logistics solutions. The buyout will boost Costco’s e-commerce capabilities and facilitate sales of "big and bulky" items.

Stock Outpace Industry

Costco continues to be one of the dominant warehouse retailers based on the breadth and quality of merchandise offered. In fact, its strategy of selling products at heavily discounted prices has helped it to remain on growth track. Additionally, a differentiated product range enables the company to provide an upscale shopping experience for members.

Notably, shares of this Zacks Rank #3 (Hold) company have gained 5.5% so far this year against the industry’s decline of 8.4%. In fact, the stock has fared far better than the Retail – Wholesale sector and the S&P 500 index that have fallen 2.2% and 13.7%, respectively, in the aforementioned period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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