Costco's Cash Pile Keeps Building. Is a Special Dividend Finally Coming This Fall?

Costco (NASDAQ: COST) is known for its bulk-sized retail offerings, saving its members money in the process. The same can't be said about its quarterly dividend checks. Despite lifting its payouts for 22 consecutive years, Costco's stock has delivered heartier gains over that period, yet it yields a pedestrian 0.6% right now.

This is certainly better than no dividend, but it's not the kind of yield that will attract income investors. However, Costco does have a secret weapon in its arsenal. Every few years, the country's leading warehouse club operator declares a special one-time payout. It's been three years since the chain's last one-time dividend, making another distribution more than just possible later this year.

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Keeping things special

If you're a buyer of Costco stock, your goal is capital appreciation and not the regular quarterly distributions. The shares are up 80% over the past three years, soaring 120% over the last five years. However, the special distributions it has historically declared every couple of years do sweeten the income stream for long-term investors beyond its modest current yield of 0.6%. Here are the last few one-time distributions.

• Dec. 27, 2023: $15 a share
• Dec. 1, 2020: $10
• May 8, 2017: $7
• Feb. 5, 2015: $5
• Dec. 6, 2012: $7

The cadence has been somewhat consistent since Costco began rolling out these one-off declarations 14 years ago. They have come once every two or three years. It's been three years since the last major distribution, so my fellow Costco shareholders and I are likely due for another distribution later this year.

Everything counts in large amounts

Even with Costco shares approaching four figures, the occasional special distributions are material. The $15-per-share one-off declaration would add another 1.56% to the current 0.6% yield. It also wouldn't be a surprise to see the payout be materially higher than $15 a share. Its last three special disbursements have been at least 40% higher than the previous offering.

At 40%, this would amount to a dividend of $21, yielding 2.2%. Costco is certainly good for the money. It may operate on lean margins intentionally to give its members more bang for their buck, but it still makes far more money than it pays out to shareholders every three months. Its cash and short-term investments have ballooned from $15 billion to $20 billion since its last one-time dividend. Its long-term debt is roughly the same, currently at $5.7 billion.

Don't be surprised if Costco declares a $21 one-time dividend -- or even $20, for the sake of round numbers -- in the fall, and pays it out by December. It should be easy to predict what a historically safe stock will do with its money.

Rick Munarriz has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.