Key Points
- Dividend growth investing compounds wealth through consistent payout hikes from quality firms.
- Strong earnings can still spark selloffs, creating entry points like this stellar dividend growth stock’s recent 15% discount to highs.
- At under $1,000, balance valuation risks with the company’s proven resilience.
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Dividend growth investing stands out as a reliable path to building long-term wealth. By focusing on companies that consistently increase their dividends, investors tap into compounding returns that outpace inflation and market volatility over decades. These payouts provide a steady income stream, reinvestment opportunities, and a buffer during downturns.
The key is assembling a diversified portfolio of high-quality firms with strong balance sheets, competitive advantages, and a track record of raising dividends annually. Such companies signal financial health and management commitment to shareholders, often leading to superior total returns compared to non-dividend payers. This strategy rewards patience, as the real magic unfolds through years of uninterrupted growth.
Yet, even top performers face market whims. Take the dividend growth stock below: It just delivered stellar earnings, only to see shares dip afterward. Now trading at $915 per share, it’s 15% below its 52-week high of $1,078 and only up a modest 1.6% in 2025. With the price now under the $1,000 mark, is it time to buy?
A Growth Machine That Keeps Humming
Costco(NASDAQ:COST) continues to dominate the warehouse club space, and its fiscal fourth-quarter results for 2025 last week underscore that momentum. The retailer posted net sales of $84.4 billion, up 8% from the prior year, and beat analyst expectations.
Its gains were driven by robust comparable sales growth of 5.7% and a 15% surge in e-commerce, pushing full-year digital revenue past $19.6 billion. Membership fees — a high-margin staple — climbed 14% to $1.72 billion, fueled by fee hikes in key markets and upgrades to premium plans.
These figures highlight Costco’s exceptional growth and cash generation. Net income hit $2.61 billion for the quarter, contributing to a full-year total of $8.1 billion. The company opened 27 new warehouses in Q4, including relocations, and it plans 35 more openings in fiscal 2026. With 914 locations worldwide (629 in the U.S.), Costco’s expansion supports scalable revenue. Operating cash flow also remains strong, funding dividends, buybacks, and growth without straining the pristine balance sheet. Even as consumer spending cools in spots, Costco’s value proposition — bulk deals and low prices — keeps traffic steady, proving its model fires on all cylinders.
Loading stock data...Can It Justify the Premium?
Despite the operational wins, valuation weighs on Costco’s appeal. At around 41x forward earnings, the stock looks stretched, especially if sales or margins face headwinds. Trailing P/E sits higher at 54x, reflecting premium pricing for its stability.
Critics argue this multiple leaves little room for error; any slowdown in membership growth or e-commerce could trigger a pullback. Broader market rotation toward value stocks adds pressure, as Costco trades at a discount to its five-year average but still commands a lofty tag relative to peers.
That said, the premium isn’t unwarranted. Costco’s moat — loyal members (81 million paid households), pricing power, and efficient supply chain — justifies it for growth-oriented investors. Analysts peg a consensus target near $1,072, implying 17% upside from $915. Still, at this level, it’s more of a quality hold than a bargain hunt.
A Solid Dividend Track Record
Costco’s dividend history exemplifies dividend growth investing at its best. The company has hiked its payout for 20 straight years, with a near-13% compound annual growth rate (CAGR) over the past decade. Over the last five years, that pace accelerated to almost 15% annually, outstripping inflation and bolstering shareholder value.
The current quarterly dividend stands at $1.30 per share, yielding about 0.5% at $915 — modest on the surface. Costco also issues occasional special dividends, typically every three or four years (its last was in 2023).
But focusing on yield alone misses the point. Investors should also consider yield on cost (YOC), which measures current dividends against your original purchase price. For long-term holders, YOC has ballooned over the decade. An investor buying in 2015 now enjoys a YOC of 3.57%, with payouts compounding annually.
This metric reveals Costco’s true income potential, turning a low starter yield into a powerful wealth engine over time.
Key Takeaways
Costco remains a buy at $915 per share, though not one to load up aggressively on. Its bulletproof business model, anchored by membership fees and everyday low prices, ensures continued growth. Even in lean economic times, consumers flock to its stores for value, making shares resilient.
You might skip taking a large position now — wait for any pullback to add more boldly — but Costco merits a spot in any dividend growth portfolio, particularly below $1,000 per share.