Prediction: Wall Street's Next Blockbuster Stock Split Will Come From This Retailer
Key Points
Costco hasn't split its shares since a 2-for-1 move in January 2020.
Revenue, earnings, and the stock price have risen 9-, 14-, and 20-fold in that time, respectively.
With momentum on its side, announcing a stock split when it likely comes through with a special dividend declaration later this year makes sense.
You have to go all the way back to 2020 since Costco (NASDAQ: COST) last issued a stock split. A lot has happened with the country's leading operator of warehouse clubs in that time.
- Its annual revenue has soared ninefold, from $32 billion to $303 billion.
- Its net income has skyrocketed 14-fold to $9.2 billion.
- Costco has gone on to issue a streak of annual dividend hikes that is now 22 years long.
Perhaps more importantly for our split purposes, Costco has been nearly a 20-bagger since its 2-for-1 split more than 26 years ago. The shares were approaching $100 at the time, so bringing back the price tag just below $50 made sense at the time. It just makes sense to happen soon with Costco stock approaching $1,000.
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A splitting headache
The irony is rich. Costco's appeal lies in its low prices, but the same can't be said for its share price. There are currently just 25 exchange-traded stocks in the U.S. market trading above Costco's $942 per-share price. Why has it refused to split its stock since the dot-com bubble popped?
Both Costco and the Price Co., which merged in 1993, had declared a pair of 2-for-1 or 3-for-2 splits on their own before the corporate combination. Splits were fashionable then, as ascending stocks approached triple digits. It's not really a requirement these days, in an era when odd lots and even fractional shares are available through a growing number of brokerage outlets. It doesn't mean that Costco can avoid the inevitable.
Moving away from bulk-sized price points
The timing seems ideal for Costco to split its shares in the coming weeks. Along with its perpetually rising quarterly dividend, the warehouse club chain has issued larger special distributions every two or three years. Its last one-time payout happened in December 2023, so its next declaration should happen before the end of this year.
Costco has momentum. It just wrapped up its strongest annual revenue growth in four fiscal years. Its bottom line is growing even faster. As a low-beta stock that is relatively recession-resistant, it's not likely that its stock will collapse if the economy starts to soften. Folks will just lean on Costco more for their essentials when money is harder to come by.
The stock's valuation isn't cheap, but Costco seems to always trade at a healthy premium to both the market and its own reliable growth rates. It doesn't have to bring its stock price all the way down to the high $40s the way it did 26 years ago. However, a 5-for-1 or even 10-for-1 stock split makes sense -- for a market that invests in dollars and cents.
Rick Munarriz has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.