Want $3,000 in Annual Passive Income? Invest $146,000 in Costco in July and Wait 10 Years. (But It's Not Just About the Dividend Income.)
Key Points
The warehouse club retailer isn't typically regarded as an income investment.
If you dig deeper into how it rewards shareholders through its expansion-driven growth, however, you'll see this ticker brings more than capital appreciation to the table.
Costco is just one of several lower-yielding stocks that could become fantastic income holdings over time.
- 10 stocks we like better than Costco Wholesale ›
Are you looking for good future investment income? Most investors can find dividend stocks worth owning right now. Picking income stocks worth holding in the distant future, however, is a bit trickier.
But, while past performance is no guarantee of future results, past results are a pretty good indicator of what the future likely holds.
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To this end, if you'd like to be pocketing $3,000 worth of annual dividend income in 2036, buy 156 shares of club-based retailer Costco Wholesale (NASDAQ: COST) today, at a total cost of around $146,000.
The present isn't anything like the likely future
None of these numbers makes sense at first blush. Costco's current forward-looking yield is just a hair over 0.6%, and besides, $146,000 is a massive amount of money.
Image source: Getty Images.
The numbers make much more sense, however, when you know the rest of the story. That is, while Costco stock's current yield is tiny, the company's dramatically grown its quarterly per-share payout over the past decade, from $0.45 as of mid-2016 to $1.47 now. Assuming the retailer maintains this average annualized growth rate of more than 12%, come 2036, Costco's quarterly per-share payment could be around $4.80, or $19.20 per year.
Dividend stocks don't have to be just dividend holdings
This still seems less than thrilling, given the total amount of money tied up in the meantime. Just understand that this dividend-paying stock has also logged some serious gains over the past 10 years, advancing from $155 then to $940 now, in step with the company's continued expansion that's still in place, and that's likely to persist. A repeat of this growth is certainly possible, making the sizable investment in Costco today worth it in the long run. Moreover, based on its growth track record to date, a $146,000 investment in Costco today could produce nearly $10,000 worth of annual dividend income in 20 years.
Perhaps the more important takeaway, though, is acknowledging that some fantastic future income investments should be established now so they're ready to produce then.
Should you buy stock in Costco Wholesale right now?
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James Brumley 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.
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