Costco Hiked Its Dividend by 13%. Here Is What a $10,000 Investment Earns Annually.

If you plunk $10,000 into shares of Costco Wholesale (NASDAQ: COST), how much passive dividend income will that generate? A cursory look at Costco would suggest its recent dividend yield of 0.65% is puny, generating just about $65 in annual income from your $10,000. (With a recent stock price of $902, you'd be buying about 11 shares.)

Don't let that be a dealbreaker, though, because there's more than meets the eye here, and Costco is definitely a dividend income generator worth your consideration.

Meet Costco

Costco needs little introduction, but here are a few facts about it: Launched in 1976 as Price Club, it originally sold goods to small businesses. But it broadened its scope in 1983 with its first Costco warehouse in Seattle and became the first company ever to grow from $0 to $3 billion in sales in less than six years.

It now boasts 939 warehouse stores, 647 of which are in the U.S., with others in Europe, Canada, Mexico, Japan, and beyond. Costco is known for being good not just to shareholders (its stock has averaged annual gains of 20% over the past decade) but also to its employees and customers.

Costco's surprising dividend story

A key thing to understand about Costco is that it's not only a dividend payer but also very much a dividend grower. Its most recent hike, announced in April, was a 13% increase.

Check out some of its quarterly payments in recent years:

Paid in...	Quarterly Dividend per Share
August 2026	$1.47
August 2025	$1.30
August 2024	$1.16
August 2023	$1.02
August 2022	$0.90
August 2021	$0.79
August 2020	$0.70

Source: Costco.

Since 2020, Costco's payout has more than doubled. So while getting $65 today may be disappointing, it could be $130 or $150 within a few years.

But the Costco dividend situation is much better than that -- because the company occasionally issues "special dividends" -- which tend to be kind of ... huge. Check it out:

Paid in...	Special Dividend per Share
January 2024	$15.00
December 2020	$10.00
May 2017	$7.00
February 2015	$5.00
December 2012	$7.00

Source: Costco.

We don't know when the next special dividend will be distributed, but if it remains at $15.00 per share, your 11 shares will generate $165. If it's bumped to, say, $20, the shares will generate $220. And more in the years to come. Remember too that those special dividends aren't used in calculating the dividend yield (which is calculated using the trailing 12 months of dividend payments only). So Costco's low yield is accurate by accounting standards, but inaccurate as to how well Costco stock pays for ownership.

Should you invest in Costco?

I myself am a shareholder, and I recommend the stock to others as well -- with one caveat: Don't buy into it with no regard to valuation. Right now, for example, the shares seem a bit overvalued, with a recent price-to-sales ratio of 1.37, above the five-year average of 1.24. The price-to-earnings (P/E) ratio, recently at 45, is roughly on par with the five-year average, but it's a bit steep compared to your average stock. You will probably do all right if you plan to hold the shares for many years, if not decades, but to play it safer, you might wait and hope for a price dip.

Selena Maranjian has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.