Costco Signals Possible Special Dividend After Mixed Q3

Costco Wholesale’s shares fell May 29 after the Issaquah-based retailer reported mixed fiscal third-quarter results. Revenue exceeded $70 billion, topping analysts’ estimates, while diluted earnings per share were $4.93, below expectations.

On the earnings call, Chief Financial Officer Gary Millerchip said the company is “in a position where we continue to generate excess cash” and added that “a special dividend is typically the most effective way to return excess cash without giving up the flexibility to keep investing in growth.” He did not announce a payout.

Bernstein analyst Zhihan Ma recommended buying the stock on the pullback and told clients an announcement of a special dividend would not be surprising. Bank of America analyst Christopher Nardone noted Costco paid a special dividend in January 2024 and has tended to issue such one-time payouts every two to three years, which could place another distribution within upcoming quarters given the company’s balance sheet. The prior special dividend carried a yield of about 2.4%; at current prices a comparable yield would imply a payout near $24 per share versus the $15-per-share disbursement in January.

Operationally, digitally enabled sales rose more than 21% in the quarter. Worldwide membership renewal rates were 89.7% and total paid memberships stood at 82.9 million at quarter end. Management reported market share gains in pharmacy, driven in part by demand for GLP-1 medications.

The company has expanded retail media and digital partnerships, including agreements with Google Commerce and YouTube, to grow advertising revenue tied to its customer base. Analysts pointed to membership trends, pharmacy performance and digital sales as supporting the company’s core business.

Technical indicators showed the stock’s relative strength index in the low 30s, a level often viewed as approaching oversold. Wall Street’s consensus rating remained a moderate buy, with a mean price target around $1,094, implying roughly 15% upside from recent levels.

Costco reports on a fiscal basis; the company’s third-quarter figures reflect that reporting period and explain why comments about excess cash drew interest from investors and analysts looking for one-time returns of capital.