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Costco (COST) increased its dividend again, delivering a 13% hike that aligns with the company’s roughly 12% average annualized dividend growth over the past decade. For dividend-growth investors, the latest increase reinforces the retailer’s long-running record of returning capital to shareholders.
Costco operates as a club store, meaning customers pay an annual membership fee to shop at its locations. This membership structure is central to how the company generates profit, because membership fees contribute a meaningful share of gross profit even though they are a small portion of total revenue.
In the first half of fiscal 2026, Costco generated revenues of $136.9 billion. Membership fees accounted for just under 2% of revenues. While that share may appear minor, it translates into nearly $2.7 billion in income—more than half of the company’s gross profit for the period.
During the same first-half period, merchandise and SG&A costs totaled $131.8 billion, leaving gross profit of roughly $5 billion. Most of those costs are associated with operating the stores, while membership fees largely flow directly into gross profit.
The importance of membership fees means Costco’s retail business is supported by an annuity-like income stream that is less typical in the broader retail sector. Because the model depends on customer retention, Costco has strong incentives to encourage renewals.
Costco’s worldwide renewal rate was 89.7% in the fiscal second quarter of 2026. The rate was steady versus the first quarter, but down from 90.5% in the same fiscal quarter of 2025. The year-over-year decline is described as not being the end of the world, but it is still a metric investors should monitor.
The article notes that geopolitical conflict in the Middle East could push costs higher across the value chain. The most direct effect is expected to be on transportation costs, with higher oil prices feeding into gas prices. Over time, the impact could extend further, including to areas such as fertilizer costs and packaging expenses.
It also states that customers are already tightening budgets, and that these efforts could intensify.
Because Costco relies on membership fees, the company can be more aggressive with product pricing than retailers that do not use a membership model. This allows Costco to accept lower margins than peers, which the article frames as a key part of the company’s long-term growth story.
Despite the slight year-over-year decline in renewal rates, the article suggests Costco customers remain satisfied with the shopping experience.
On valuation, Costco’s price-to-earnings ratio is cited at 51x, described as high relative to the average retail stock P/E of around 18x. The dividend yield is listed at 0.66%, which the article notes is below the S&P 500’s 1.1% and near the lowest levels in Costco’s history, indicating a rich valuation.
The article concludes that buying Costco at current levels means purchasing near the highest valuation points in the company’s history. It adds that while the business may remain suitable for long-term dividend-growth investors who already own the stock, it may be better suited to a “wish list” for those who do not yet own shares.
Premium gym chains are entering a “golden era” that is ending or already in decline, as rising operating costs collide with shifting consumer preferences toward more flexible, community-based ways to exercise. Long-term memberships are shrinking, margins are pressured by higher rents and facility expenses, and competition from smaller, more personalized…
