Rising U.S. gasoline prices and rising interest rates seem poised to sap consumer disposable income, meaning that many Americans will soon have to look for ways to stretch their budgets. That's probably good news for Amazon (AMZN) , but income-oriented investors probably already know that AMZN doesn't pay a dividend. So, those who want a mix of dividends and capital appreciation might check out warehouse retailer Costco (COST) instead.
COST has not only consistently paid a quarterly dividend since 2011, but has been boosting it each year -- and has even paid special extra dividends from time to time. The company has also been gaining consumer wallet share in a big way over the past several months. For example, same-store sales rose 7.9% year over year during April alone (excluding the impact of foreign exchange and rising gas prices). And for those looking for online-sales exposure, Costco's e-commerce revenues rose 41.5% year over year in April as well.
Additionally, while Costco's low prices should attract increased sales to cash-strapped U.S. consumers, one of its primary profit drivers is its higher-margin customer-membership fees. You have to pay a $60 to $120 annual membership fee to shop there, and these fees accounted for 73% of COST's operating profit during the latest quarter.
Costco is also growing its footprint, with 749 locations worldwide as of April, up from 729 a year earlier. That should climb to 766 sites by Aug. 31, paving the way for further company profits (and dividend increases) going forward.
All of this has helped COST's share price creep higher over the past few months, rising from $178 in February to $200.74 as I write this Thursday morning. Analysts have also raised their consensus price target to $210, which offers roughly 5% upside before even before accounting for the company's 1.15% dividend yield.
My recommendation -- nibble on the shares at current prices, then look to build out a larger position on any decent pullbacks.