Costco Faces 2025 Share Challenges but Maintains Long-Term Dividend Appeal

Costco Wholesale has historically been a strong investment with consistent stock outperformance and reliable dividend growth due to its membership-driven business model. The company has raised its quarterly dividends annually for 21 years and occasionally issues special dividends, enhancing total shareholder returns. Despite this track record, Costco's shares have underperformed in 2025, declining 2% year-to-date against a 17% rise in the S&P 500. This underperformance is attributed to slowing comparable-store sales growth indicating restrained consumer spending, tougher year-over-year membership fee comparisons following 2024's fee hikes, and a high valuation with a price-to-earnings ratio above 50 compared to competitors like Walmart and Target. Fiscal first quarter 2026 results due December 11 are expected to show earnings of $4.27 per share and revenue of $67.15 billion, implying growth of 11% and 8% respectively, supported by strong preliminary November sales. Management plans to expand warehouse locations by 35 in fiscal 2026 and target membership renewal rates over 90%, while also pushing growth in e-commerce and international markets. However, softer U.S. traffic and potential comp sales deceleration remain cautious factors. Costco's special dividends have typically been paid on a three-year cycle during periods of strong performance, but current market and operational conditions suggest a special dividend is unlikely in the near term. Despite this, Costco's substantial cash reserves and low debt provide financial flexibility. The stock's forward valuation multiple around 40 indicates it is comparatively undervalued relative to its historical performance. The company's competitive moat, membership loyalty, and disciplined financial practices make it an attractive long-term investment proposition, especially given the recent share price pullback in 2025. Investors should monitor upcoming earnings for indicators of sales momentum and any shifts in membership trends that could impact dividend prospects.