Is Another Big Special Dividend Coming Up for Costco Wholesale Investors in December?

Over the years, Costco Wholesale (NASDAQ: COST) investors have become accustomed to collecting special dividends when the company has a strong year. However, special dividend payments are even less of a guarantee than regular dividend payments as they don't follow a schedule. Just because a company makes them one time doesn't mean it will again.

But Costco has made special dividend payments multiple times in the past several years. And last year, that announcement came in December. Should investors expect another special dividend payment from Costco this year?

Costco has announced a special dividend in 3 of the past 7 years

Last year, Costco announced a special dividend of $15 per share, which coincided with the release of its first-quarter results. Prior to that, it paid a special dividend of $10 per share in 2020, which came a few years after making a special dividend payment of $7 per share in 2017. The company also made special dividend payments in 2015 ($5) and 2012 ($7).

While Costco has made many of these types of payments in the past, it has yet to do them in back-to-back years. But with special dividend payments, investors shouldn't rely strictly on patterns as they're likely due more to sheer profit growth than anything else.

Costco may feel compelled to reward its investors through special dividends. Otherwise, it might seem like an underwhelming dividend stock to own, given its modest 0.5% yield. That's well shy of the S&P 500 average of more than 1.2%.

Could Costco justify a special dividend payment this year?

Costco has been a growth machine over the years, and that's made it possible for the company to offer such high rates of special dividend payments. Its payout ratio is a relatively modest 26% of earnings.

While the company could justify a big increase to its recurring quarterly dividend payments, Costco seems to prefer nonrecurring special dividend payments. These can give it much more flexibility and result in less pressure by not creating the expectation of higher recurring payments, which could drain its cash and limit its growth opportunities.

Now, amid more tepid growth and potentially more challenging economic conditions, it may be difficult for Costco to justify making another special dividend payment in December, especially since it made one just last year. That's ultimately why I wouldn't expect it to happen. The company isn't having a banner year to justify making the exception.

COST Net Income (Quarterly Year-Over-Year Growth) data by YCharts.

While Costco may be able to justify making a modest special dividend payment, the company has been increasing the rate of these bonuses in recent years. Assuming it wants to continue that trend, it will probably hold off on any such announcement for the time being.

Is Costco stock still a good buy today?

As of Monday, shares of Costco were up more than 44% this year. Investors have continued to buy the stock despite paying a fairly rich multiple of 58 times its trailing earnings.

While Costco is a fantastic business to invest in, I wouldn't buy it today, due to its extremely high price tag. It can still rise in value over the long run, but its returns may be limited due to the premium at which it trades today. Costco isn't a bad buy, but there are many cheaper stocks that investors may want to consider, instead.

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David Jagielski 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.