As far as safe, dividend-paying options go, few companies can provide the income and growth potential of Costco (NASDAQ:COST) in this economic environment, in my opinion.
Market participants are rightly freaking out and question marks remain about how bad things may get. But, in the midst of the panic, companies like Costco stand as examples of a few highly defensive options that could see growth near-term.
Costco stock prices have held up remarkably well, keeping the company's dividend yield muted relative to other blue-chip companies. Other companies have seen their dividend yield spike in conjunction with stock price declines.
That said, as far as safety and future dividend growth potential goes, Costco has the cash flow, with $3.1 Billion U.S. of cash flow last quarter alone. Costco also has an excellent balance sheet which warrants the company’s current valuation.
Costco’s management team has done an excellent job of continuing to shore up margins via cost management initiatives. In addition, Costco’s management team has doubled down on a corporate strategy of growing the Kirkland private label brand in its own stores.
Expanding Costco’s private label serves to build market share and brand loyalty, two important long-term drivers of growth for any company in the grocery retail business. This is particularly true in the era we're now in, with technological disruption in the sector a real challenge for all players in the industry.
Invest wisely, my friends.
