We recently published a list of the 13 Best American Dividend Stocks to Buy According to Analysts. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against other best American dividend stocks.
Dividend-paying stocks have long benefited investors by delivering consistent and solid returns. During periods of economic uncertainty, they’ve generally performed more reliably than many other types of investments. Because of these qualities, more investors are turning to dividend stocks to take advantage of their compounding potential. This growing optimism has also encouraged several companies to join the dividend club, which was evident in the way tech firms eagerly began issuing dividends in 2024.
According to a report by S&P Dow Jones Indices, dividends paid by the S&P companies reached a new high of $167.6 billion in the fourth quarter of 2024, marking a 6.7% increase from the previous quarter’s $157.0 billion—which itself had set a record. This also represented an 8.7% rise compared to the $154.1 billion paid out in Q4 2023. For the full year, total dividend payments hit an all-time high of $629.6 billion in 2024, up 7.0% from the $588.2 billion distributed in 2023. The report further mentioned that the indicated dividends for the top 20 companies in the S&P index amounted to over $141 billion.
Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, made the following comment about dividends:
“Under an increased tax, some of the expenditures may shift from buybacks to dividends. However, any shift was not seen as being on a dollar-for-dollar basis as dividends remain a long-term pure cash-flow item which must be incorporated into corporate budgets.”
Dividends have played a key role in driving overall returns from equity investments over the long haul. This was emphasized in a study by London-based Guinness Global Investors, which examined the broader market’s performance dating back to 1940. According to their analysis, dividends and reinvested payouts made up about 94% of the index’s total return during that time. To put it in perspective, a $100 investment made at the end of 1940 would have grown to roughly $525,000 by the end of 2019 if dividends were reinvested, compared to just $30,000 if the dividends had simply been taken as cash.
The report also pointed out that dividends become a more significant part of total returns the longer an investment is held. Since 1940, for the broader market, dividends have made up about 27% of total returns over a typical one-year holding period. Stretching that to three years, their contribution rises to 36%. Over five years, it climbs to 40%, and over ten years, it reaches 47%. For investors who hold their positions for twenty years, dividends end up accounting for around 57% of the total returns. Due to this performance, analysts also recommend investing in dividend stocks.
A customer in a warehouse aisles, browsing the wide range of branded and private-label products.
Our Methodology:
We created this list by scanning Insider Monkey’s Q4 2024 database for US companies that have strong dividend policies and are traded on American stock exchanges. From that group, we further refined our selection criteria by identifying stocks with a projected upside potential of over 5% based on analyst price targets, as of April 20. The stocks are ranked according to their upside potential.
At Insider Monkey, we are obsessed with hedge funds. 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).
Costco Wholesale Corporation (NASDAQ:COST)
Upside Potential as of April 20: 9.26%
Costco Wholesale Corporation (NASDAQ:COST) is a Washington-based retail company that operates membership-only big box warehouse club stores. With a global network of 897 warehouses, the company continues to deliver consistent revenue growth and maintains membership renewal rates above 90%.
Looking ahead to fiscal 2025, Costco Wholesale Corporation (NASDAQ:COST) plans to open 29 additional locations. For investors, this signals continued growth potential, especially since the company hasn’t yet reached market saturation—even in the US, where 617 of its warehouses are located. Several midsize American cities still lack a Costco, and many large metropolitan areas do not yet have a business center, indicating significant room for further domestic expansion.
In fiscal Q2 2025, Costco Wholesale Corporation (NASDAQ:COST) reported revenue of $63.7 billion, which showed a 9.1% growth from the same period last year. The company’s net income for the quarter came in at $1.8 billion, up from $1.7 billion in the prior-year period. Its cash position also came in strong as it had over $12.3 billion available in cash and cash equivalents. The company’s operating cash flow for the quarter came in at $6 billion, up from $5.4 billion in the same quarter last year.
Due to this cash position, Costco Wholesale Corporation (NASDAQ:COST) declared a 12% hike in its quarterly dividend to $1.30 per share on April 16. This was the company’s 21st consecutive year of dividend growth, which makes COST one of the best dividend stocks on our list. The stock has a dividend yield of 0.47%, as of April 20.
Overall, COST ranks 10th on our list of the best American dividend stocks according to analysts. While we acknowledge the potential of COST as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than COST but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
