We recently published a list of 10 Best Consumer Staples Dividend Stocks To Invest In. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against other best consumer staples dividend stocks to invest in.
The consumer staples sector delivered a total return of 12.3% in 2024, a solid performance for a typically stable industry. However, without the substantial gains from two of its largest components, the sector’s overall returns would have been significantly lower. Known for its defensive nature, this sector appeals to risk-averse investors seeking steady income. While consumers might scale back on household essentials during economic downturns, the decline is generally less pronounced compared to discretionary spending on entertainment, travel, and similar categories. That said, many companies in this space are not expected to grow their earnings as rapidly as the broader market, which could result in underperformance during periods of strong market growth.
The consumer staples sector consists of companies that produce essential goods such as packaged foods, toothpaste, and dish detergent. The sector is home to many well-established companies that consistently pay dividends, further reinforcing its defensive nature. However, this defensive positioning remained a headwind rather than an advantage for most of 2024, following the sector’s decline in popularity in 2023. Investors largely steered away from defensive stocks, instead favoring a select group of mega-cap growth companies, particularly those linked to artificial intelligence. Moreover, persistently high interest rates put further pressure on dividend-paying stocks, as they are often seen as alternatives to bonds. Concerns over the potential impact of GLP-1 weight-loss drugs on food and beverage consumption also added to the sector’s challenges.
Amid a broader increase in short interest across equities, consumer staples stocks saw a rare shift in sentiment among short sellers during the summer months. According to the latest data from S&P Global Market Intelligence, short interest in the sector declined from 4.16% at the end of May to 3.87% by the end of August. Notably, the consumer staples was the only one among the 11 stock sectors to experience a drop in short interest over that three-month period.
Even so, the sector did not go unnoticed in 2024, as investors shifted their focus to it in August amid growing recession concerns and heightened market volatility. A report from Business Insider noted that the sector climbed approximately 4.1% that month, significantly outperforming the broader market, which saw a gain of just over 1% during the same period. Analysts at Bank of America observed that US consumers have been adjusting to a weaker labor market, dwindling pandemic-era savings, and elevated interest rates. This shift is evident in various ways, including the stronger performance of consumer staples stocks compared to their discretionary counterparts.
As 2025 approaches, analysts expect the consumer staples sector to regain stability amid a generally steady economic environment and a consumer landscape that, while under some pressure, is not facing severe strain. A report from Fidelity notes that overall consumer demand remains firm, household finances are in good shape, employment levels are strong, and real wage growth is holding steady. With the Federal Reserve starting to lower interest rates, the sector’s prospects appear favorable.
Our Methodology
For this list, we identified dividend-paying stocks from the broader market’s Consumer Staples Index with strong dividend growth track records. After that, we sorted these dividend stocks using Insider Monkey’s proprietary hedge fund sentiment data as of Q4 2024, which means that these stocks are the most popular dividend stocks among the elite hedge funds. The list is ranked in ascending order of the number of hedge funds having stakes in the companies.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
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A customer in a warehouse aisles, browsing the wide range of branded and private-label products.
Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 95
Costco Wholesale Corporation (NASDAQ:COST) is a Washington-based retail company. In fiscal Q1 2025, the company reported $62 billion in revenue, marking a 7.5% increase from the previous year. Net income rose to $1.8 billion, up from $1.6 billion in the prior year. The company ended the quarter with a strong cash position, holding nearly $11 billion in cash and cash equivalents, an increase from $9.9 billion in the previous quarter. It also generated $3.3 billion in operating cash flow.
In the past 12 months, Costco Wholesale Corporation (NASDAQ:COST) has surged by nearly 39%. This strong performance highlights its steady growth and resilience, even as other retailers grapple with rising costs. Analysts remain optimistic about its outlook, citing its track record of outperforming competitors by consistently expanding its market share and leveraging its retailing-as-a-service model, which ensures stable membership revenue. Costco’s competitive strength lies in its membership-based pricing and bulk discount strategy, which has helped build a loyal and expanding global customer base, as reflected in its latest quarterly performance.
Costco Wholesale Corporation (NASDAQ:COST), one of the best dividend stocks, currently offers a quarterly dividend of $1.16 per share and has a dividend yield of 0.45%, as of February 24. The company holds a 20-year streak of consistent dividend growth.
Overall, COST ranks 1st on our list of best consumer staples dividend stocks to invest in. While we acknowledge the potential for COST as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than COST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.