Chart of the Week: Costco Earnings Highlights Stock’s Appeal to Investors

Costco stock buy

Author: Tim Phillips

September 24, 2021

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If you’re thinking about investing for the long term, it’s always wise to have some “bedrock”, slow-but-steady stocks in your portfolio.

That’s because these businesses provide some ballast for your portfolio during times of volatility, such as during the Covid-19 pandemic or the potential China Evergrande default.

Of course, there’s no doubt we want to have exposure to high-growth stocks but we also have to remind ourselves that this requires us to be psychologically disciplined when stock markets plunge.

That’s because as growth stocks can go up fast, they can also fall more heavily than the broader stock market.

With that in mind, it was interesting to see a stellar earnings report from one of the most robust consumer companies in the US – Costco Wholesale Corporation (NASDAQ: COST).

Under-the-radar retail giant

For those of us living outside the US, we may never have encountered a Costco store.

But the American retail giant essentially operates a membership club model, whereby customers pay a subscription fee and in return they can buy items in bulk at Costco stores – at incredibly low prices.

The company is both a retailing behemoth and a stable one, too. During the initial stages of the Covid-19 pandemic (in the first quarter of 2020) while the S&P 500 Index plunged by 30%, Costco shares only saw a 10% pullback.

Meanwhile, over the past five years Costco shares have steadily risen by nearly 200% (see below), almost double the 105% increase the S&P 500 Index delivered over the same period.

Its latest fourth-quarter fiscal year (FY) 2021 (for the three months ending 29 August 2021) earnings, announced earlier this week, highlighted why this is the case given the numbers were as solid as ever.

Continuing to deliver

Costco recorded net sales of US$61.4 billion in the fourth quarter, up 17.5% year-on-year while net income came in at US$1.67 billion.

For the whole FY 2021, Costco posted a whopping US$192 billion in net sales making it the third-largest retailer globally. Net income for FY 2021 hit US$5 billion, up 25% year-on-year from FY 2020.

Meanwhile, its incredibly stable membership renewal rate, which stood at 91.3% for the US and Canada, illustrates the customer loyalty that the brand has built.

This has also helped Costco to continue raising its dividend per share (DPS), which now stands at an annual US$3.16.

That has given patient shareholders a robust compound annual growth rate (CAGR) of 13% in the dividend since Costco’s first annual DPS of U$0.40 in 2004.

So, for investors looking for some semblance of stability in their portfolio, Costco shares look set to continue to deliver.

Costco share price

Source: Google Finance as of 24 September 2021

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.