3 reasons to buy Costco

The warehouse retailer is seeing strong sales and strong dividend growth.

By InvestorPlace May 4, 2010 11:57AM

By Jim Woods, Investorplace.com


costco cost stockCostco (COST) was a darling of investors during the economic downturn as the warehouse discounter offered cash-strapped consumers a deal and saw strong profits as a result. But with the worst of the global recession in the rear-view mirror, investors are wondering what’s in store for Costco stock.

 

Now that economic conditions are improving, will shoppers keep ringing Costco’s register? Chances are they will, if strong sales numbers recently are any indication. That means investors could still see some upside in COST shares.

 

If you’re on the fence about Costco, here are three reasons you should hold your shares or buy in:

 

Solid profit and revenue: On March 3, Costco reported a second-quarter profit that was up 25% from the same quarter a year ago. The company said it earned $299 million, or 67 cents per share, for the quarter vs. a profit of $239 million, or 55 cents per share, a year earlier. 


And though Costco’s bottom-line number fell shy of consensus expectations, the top-line revenue number of $18.74 billion bested expectations.  Those better-than-expected revenues also were up 11.3% year-over-year.

 

A bigger dividend:  On April 22, the warehouse company decided to spread the wealth among shareholders by raising the Coscto dividend to 20.5 cents per share from 18 cents per share.


It was one of several high profile stocks to raise dividends recently. The 14% increase in quarterly dividend means Costco is confident in its fiscal outlook going forward, and in its ability to keep shoppers happy. And if history is any guide, there will be higher dividends to come down the road. The company has more than doubled its dividend over the past six years, and it’s raised its dividend in each calendar year since 2004.

 

Costco same store sales rising. Costco’s fiscal Q2 same-store sales -- a measure of sales at stores open at least a year and a very important metric of a retailer’s health -- jumped 9% in the quarter. 


That number falls to a 3% rise if you exclude the impact of gasoline sales and foreign exchange, but whichever way you count it, same-store sales are on the rise. That rise was seen again in March, as Coscto same store sales surged 10% for the month. Wall Street was expecting COST numbers to come in at just 9.3%.

 

Find out three more reasons to buy Costco stock here.


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