Talking Costco: Why a special dividend might not be the right play

Costco (COST) is widely anticipated to be close to teeing up a special dividend. The retailer started paying special dividends in December 2012 with a one-time payout of $7 per share, which cost about $3B. After that, the company paid $5 per share in February 2015 and $7 per share in May 2017. In November 2020, the board declared a $10 per share special dividend, and the largest one so far was the $6.7B payout in January 2024.

While some analysts and income-loving shareholders are expecting the next special dividend in 2027, Mizuho analyst David Bellinger asked whether the capital could be deployed more strategically elsewhere.

Bellinger and his team think Costco (COST) is definitively behind others when it comes to e-commerce operations, rapid fulfillment, and retail media. "We believe management could address certain weaknesses and decelerating membership growth by re-routing what would likely be $8B to 9B from a special dividend back into the business," highlighted Bellinger.

Specifically, Bellinger thinks Costco (COST) could use the funds to ramp up digital investments centered around rapid delivery options for groceries, as well as building out several hundred standalone gas stations to fuel member growth and solidify retention rates. Currently, Costco (COST) has one standalone gas station open in Mission Viejo, California, and has plans to build one in Honolulu.

In addition, the Mizuho analysts believe acquiring a high-margin advertising arm similar to what Walmart (WMT) has done with VIZIO and Vibe.co could stoke future growth and margins, as well as create pushback against the bearish narrative of under-investment by the Issaquah, Washington-based company.

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