Costco cash machine pays out again

Costco shareholders are a happy lot these days between the company’s surging share price, huge special dividends and now another substantial increase in the company’s regular quarterly payout.

Late Friday, with shareholders already sitting on a 30% increase in the stock price during the past year, the company gave them another reason to smile by hiking its dividend 12.3% to 40 cents a share, or $1.60 on an annual basis, from the current quarterly dividend of 35.5 cents, or $1.42.

A 12.3% increase is quite respectable, but a slightly slower pace of growth than the 14.5% increase the company approved a year earlier that boosted the quarterly dividend to the current payout level from 31 cents or $1.24 annually.

That’s not a concern to shareholders though as they have benefitted in other ways. Less than two months earlier Costco paid a whopping $5 a share special dividend. The one time payout cost the company $2.2 billion and if that dividend seemed large a little more than two years earlier in late 2012 the company paid a $7 a share special dividend that required it to borrow $3.5 billion.

In addition to dividends, Costco continues to repurchase its own shares. However, that is a less effective way of returning cash to shareholders given the strong appreciation of the company’s stock price during the past year and a lofty price to earnings ratio which implies investors have strong expectations for continued growth.

As a result, repurchase activity has slowed and a $4 billion stock buyback program with $2.5 billion in remaining authorization was due to expire this month. However, the program was reauthorized at the $4 billion level and the expiration was extended to April 2019. To keep the cash coming in, Costco plans to add an additional 16 warehouses to its global network of 672 locations by the end of its fiscal year on Aug. 30, 2015.

The company currently operates 474 warehouses in the United States and Puerto Rico, 89 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, seven in Australia and one in Spain.