Costco Wholesale Corporation (COST): The Good and the Bad of This Retail Stock

Dividend and buyback

The higher profit margins of Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) are reflected in these companies’ dividend payments, offering annual yields of 2.5% and 2.42%, respectively. Costco Wholesale Corporation (NASDAQ:COST) has a much lower dividend payment that results in an annual yield of 1.1%. Moreover, Wal-Mart recently approved a $15 billion stock buyback program that will benefit its investors and lower the dividends it needs to pay. Considering the low interest rates, the company could save millions of dollars by exchanging equity for debt. But this also suggests the company is putting its resources towards buybacks and not towards developing new businesses. Therefore, Wal-Mart isn’t likely to show much growth in revenues in the near future.

Takeaway

Costco Wholesale Corporation (NASDAQ:COST) is likely to keep augmenting its businesses at a much faster pace than other leading retailers. But the company’s low profit margin, low dividend yield and relatively high valuation might make this company less attractive for those who seek stocks that offer these characteristics. Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) might offer fewer thrills, but also a steady flow of dividend payments, albeit with minimal growth and slowly descending profit margins.

Lior Cohen has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale.

The article The Good and the Bad of This Retail Stock originally appeared on Fool.com.

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