Costco Wholesale (NASDAQ:COST) has proven itself one of the best dividend growth stocks of the last two decades, nearly doubling the S&P 500’s annualized return.
However, now with founder James Sinegal retired from the CEO position (he remains on the board) and the rise of major disruptive rivals such as Amazon (NASDAQ:AMZN), the company’s business model faces potential threats from numerous directions.
Let’s take a look at what allowed Costco to become the juggernaut it is today, but more importantly see whether or not the granddaddy of wholesale warehouse retail deserves a spot in a diversified dividend portfolio such as our Top 20 Dividend Stocks portfolio.
Investors should note that Costco is held in Berkshire Hathaway’s portfolio, and you can see analysis on all of Warren Buffett’s top dividend stocks here.
Founded in 1976 in Issaquah, Washington, Costco pioneered the wholesale warehouse retail business model and today operates 723 locations in nine countries on four continents.
While Costco is the world’s second-largest retailer by sales (behind Wal-Mart (NYSE:WMT)), it generates the majority of its profits (70%) from its annual $55 and $110 executive membership fees. The company has built up a base of 87.3 million cardholders around the world.
Costco is one of the world’s largest sellers of groceries, alcohol, diamonds, electronics, prescription drugs, tires, gasoline and even travel services.
While the company is working hard to expand overseas, the vast majority of sales and operating profits continue to come from its core U.S. operations.
Unlike most brick-and-mortar retailers, Costco’s business model is built around a wide moat, courtesy of its extremely loyal customer base (88% annual global renewal rate). Specifically, the company’s membership fees allow it to offer consumers greater discounts on both name brand and its own store brand goods.
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