History Says This Is the Amount of Yearly Dividend Income a $20,000 Investment in Costco Stock Could Generate By 2036 (Without Even Considering Special Dividends).
Key Points
A $20,000 investment in Costco today will net you 22 shares and generate an annual dividend stream of $129.
The company's dividend has increased by more than 10% annually for years, suggesting that a decade from now, the dividend haul could more than double.
Costco (NASDAQ: COST) is a fast-growing retailer that uses a club store model. Perhaps the best example of the company's growth is its dividend, which has generally increased at a double-digit rate every year. In fact, the worst annual increase over the past decade came in 2020, during the coronavirus pandemic. The dividend grew "just" 7.7% that year, which is still well above the historical inflation rate. What can this type of growth do for a dividend investor's income stream in a decade? Magical things and a specific example will help explain it.
How much dividend cash does $20k get you today?
If you invested $20,000 in Costco today, you could buy 22 shares as of this writing. Each of those shares would entitle you to a quarterly dividend of $1.47. So, some simple math shows that the annualized dividend per share is $5.88. Those 22 shares provide an income stream of just over $129. That's the starting point with this globally dominant retailer.
Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
Image source: Getty Images.
Now take a look at the company's dividend history. Over the past decade, Costco's dividend grew between 7.7% and 14% each year. But that 7.7% was an outlier because of the pandemic, so it is best ignored. That changes the range to 11%-14%. Those are very big numbers.
If the company's dividend increases at 11% a year over the next decade, today's $129 in annual dividend income would grow to nearly $330. It would more than double to $268 in year eight. If, however, the dividend growth is 14% a year, that $129 turns into an annual haul of nearly $420 in ten years. It would more than double to $283 in year seven of this series.
So, based on Costco's dividend history, the $129 you would collect annually from owning 22 shares of the stock (a roughly $20,000 investment) today could grow to between $330 and $420 in a decade. That's a pretty impressive outcome, and it highlights why dividend growth investors invest the way they do.
No guarantees, but your results could be even better
The piece that this math leaves out is the fairly regular special dividends that Costco pays. In 2023, it paid a $15-per-share special dividend, with $10 per share paid in 2020 and $7 per share in 2017. You can't count on special dividends, but they could materially sweeten the dividend pot if you buy and hold this reliable dividend grower.
Reuben Gregg Brewer 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.