We Love Memberships, Don’t We?

Membership has power. It means loyalty, recurring cash flow, and a business model that turns everyday groceries into a moat. Some companies discount to attract customers. Others build communities. One retailer has mastered the art of selling in bulk while locking in its audience for years—literally.

Let’s dig into this retail giant through the lens of dividends.

A Business Built on Loyalty and Pallets

Costco (COST) runs a global chain of membership-based warehouse stores, offering a wide range of national brands and private-label products. Its operations span nearly 900 warehouses globally—including in the U.S., Canada, Mexico, Japan, and the U.K.—and an expanding e-commerce footprint across several markets.

The secret sauce? Efficiency. With a lean supply chain, bulk packaging, and limited SKU selection, the business reduces costs and passes savings on to members. It makes its money not just through volume but also through a reliable stream of annual membership fees, which now contribute over half of its operating income.

That’s right: even before you buy a 48-pack of granola bars, this company has already won.

Bull and Bear Breakdown: When a Warehouse Becomes a Fortress Bull Case: Loyal Members, Predictable Cash, Relentless Efficiency

Costco thrives on its members-first philosophy. Renewal rates above 90%, a cult-following for its Kirkland brand, and operational scale across continents give it one of the strongest moats in retail. It continues to grow in both sales and store count, with about 25 new locations planned yearly—a mix of domestic and international expansion.

The core appeal? Predictable, recurring cash flow from memberships, plus razor-thin margins, turned profitable by sheer volume. E-commerce growth is finally picking up speed, and traffic continues to rise.

Bear Case: Rich Valuation, Slow Footprint, Rising Threats

But here’s the catch: all this success comes at a premium. Valuation is sky-high, with a P/E ratio over 58, well above its historical average. The yield has sunk below 0.5%, making this a growth story more than an income play right now.

The warehouse model demands heavy capital to expand, and with such a large U.S. presence already established, future growth may slow. Meanwhile, digital competitors like Amazon and aggressive discount retailers are encroaching. Costco’s underinvestment in e-commerce until recently may have limited its long-term edge.

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What’s New: Big Quarter, Bigger Expectations

On June 5, 2025, Costco delivered a stellar quarter:

• Revenue up 8%

• EPS up 13%, beating expectations

• Membership fee revenue jumped 10.4% to $1.24B

• Comparable sales rose 5.7% globally (U.S. +6.6%)

• E-commerce sales surged +14.8%

• The Kirkland Signature private-label line outpaced total sales growth

• Management increased the dividend by 12%

Even with inflation and tariffs in the background, the company navigated the quarter with its usual margin discipline and price leadership. Strategic sourcing helped it blunt cost pressures—keeping both value and profits intact.

The Dividend Triangle in Action: Growth, Income, Stability

Let’s break it down across our Dividend Triangle:

• Revenue: A clear and steady uptrend, now at $268.8B
• EPS: Climbing to $17.59, reflecting profitable expansion
• Dividend: Regular increases, with occasional special dividends sweetening the deal. The latest annualized dividend sits at $1.30, but remember—it’s the special payouts that really drive long-term returns here.

Note: While the yield is modest (sub-0.5%), the dividend growth is impressive, and total shareholder returns have been outstanding.

Final Words: The Power of the Card

This isn’t just a warehouse. It’s a habit, a lifestyle, a recurring-revenue engine powered by low prices and big value. While valuation is rich today, Costco continues to prove that it can grow earnings, reward shareholders, and thrive—even when the economy takes a breather.

It’s the kind of business where loyalty shows up in both the checkout line and your portfolio.

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