After Tuesday's close, Costco (COST 175.97, +3.29, +1.9%) stole some of the earnings reporting spotlight with an announcement that it will be paying a special cash dividend on its common stock of $7.00 per share. That special dividend will be paid on May 26 to shareholders of record at the close of business on May 10.
The analyst at Barclays said on April 21 that the firm saw potential for a special dividend from Coscto and that analyst, who upgraded the stock to Overweight from Equal Weight and raised the price target to $185 from $170, was proven right.
The aggregate payout for Costco's special dividend is a cool $3.1 billion and it will come on top of the retailer's regular quarterly cash dividend of $0.50 per share, which was also declared on Tuesday and marks an 11% increase from the prior quarterly dividend.
Every owner of Costco's common stock will benefit from the dividend payments, but none more so than The Vanguard Group, which is Costco's largest shareholder. According to a 13F Form, The Vanguard Group held just over 31,000,000 shares, or 7.06% of the outstanding stock, as of December 31, 2016.
Costco said it plans to fund the special dividend with additional borrowings, cognizant that it has favorable access to the credit markets now and a strong balance sheet.
This news from Costco is special indeed considering there is a lot of pain and suffering in the retail industry right now due to the rise of online competition, namely Amazon (AMZN), a lack of pricing power, weak mall traffic, and changing consumer buying preferences.
Costco, however, is in a sweet niche of selling attractively-priced merchandise in bulk, most of which includes grocery items, that appeals to higher-income, yet budget-conscious, consumers at stand-alone locations. It is a niche that Amazon has not penetrated and it's a niche that has made Costco a formidable competitor for the Sam's Club operations of Wal-Mart (WMT).
Shares of COST, which were up 7.9% for the year as of Tuesday's close, have padded their gains with today's early trading action.