The Issaquah, Wash., operator of more than 800 stores recently traded at $387, up 1.9%. The shares have climbed 29% year to date.
The special dividend, Costco's fourth in eight years, is payable Dec. 11 to holders of record Dec. 2. Costco said it would fund the $4.4 billion total payout with cash on hand.
“This … came a few months earlier than we forecasted,” Oppenheimer analyst Rupesh Parikh wrote in a commentary. "COST represents our favorite holiday-season retail play.”
He has an outperform rating on the stock, with a share-price target of $400. “Even after this payout, more special dividends are likely on the horizon in coming years,” he said.
Morgan Stanley's Simeon Gutman has an overweight rating, also with a share-price target at $400.
“COST is one of the first covid beneficiaries in our coverage to announce plans to deploy excess cash,” he said. “It demonstrates confidence in the business even as pandemic disruption continues.”
Stephanie Wissink, analyst at Jefferies, has a buy rating and $435 price target on Costco.
“We see the event as confirmation of management and board confidence in [the] current cash balance and future cash-flow generation,” she wrote. “The quarter-to-date [comparables] pace implies strong momentum.”
Stifel analyst Mark Astrachan rates Costco buy with a $390 share-price target.
“Costco’s special dividend is representative of strong free-cash-flow generation of the business and a current net cash position of $5.7 billion,” he said.
“We believe the announcement indicates expectations for continued strong free-cash-flow generation.”