Costco's Victorious 2012
Dec 26th 2012 4:14PM
Updated Dec 26th 2012 4:22PM
This year, investors and consumers really began to understand the kind of long-term, friendly company that warehouse discounter Costco is. The stock soared to new heights as 2012 wore on, despite plenty of macroeconomic concerns hitting other stocks. However, with Costco's shares just brushing the $100-per-share mark, some investors may be wondering if they should take the money and run.
In 2012, Costco finally received the attention it deserved as one of the truly great retailers out there. As Wal-Mart's labor practices came under scrutiny, resulting in strikes and plenty of bad press, the mainstream public began to view Costco as the opposite of Wal-Mart.
Costco provides low prices to its clientele and treats its workers very well, providing a living wage and great benefits such as health insurance. And even though die-hard investors may think that sounds like a recipe for a lack of profitability, Costco is quite profitable, and has been steadily growing sales, too.
Costco's positive policies are even more significant given the fact that Wal-Mart's less stellar ways of treating employees aren't the exception to the rule. Big-box retailers like Target and Home Depot are similarly skimpy with employee benefits. Costco is one of the companies that has proven that being profitable and worker-friendly is doable.
Although Costco proved itself to be very recession-resistant through the worst of times over the last several years, it continued to report solid earnings and sales in 2012, further proving it's a gold-standard stock for the long term. Costco also crossed another major hurdle; well-known and highly respected co-founder and CEO Jim Sinegal retired in the beginning of 2012, although he has remained around as an advisor. So far, business hasn't changed under current CEO Craig Jelinek and others in top management.
In late 2012, Costco had plenty of company in deciding to issue a one-time "special dividend" ahead of uncertainty about dividend taxation next year. Companies like Las Vegas Sands and Carnival also rushed to pay out one-time windfalls to their investors, but Costco's was one of the largest, with its special dividend of $7 per share.
Although Costco shareholders may cheer such a payout in the short term, the fact that Costco is funding that hefty dividend with debt is where I become critical of that decision. Although Costco's financial standing remains solid, this does raise the issue that the company now has a less-ironclad balance sheet than it boasted before.
Despite my distaste for a dividend funded by debt, Costco remains one of my favorite companies for a strong, solid long-term portfolio. Its positive attributes and stellar management landed it in the real-money portfolio I manage for Fool.com, after all.
As 2012 draws to a close, Costco's a solid hold. Trading at 20 times forward earnings, it isn't the cheapest retail stock around, and investors might want to wait for some temporary weakness to pick up shares. Still, investors could do worse than to pay up for a high-value stock like this one, which proves time and again that it's a real class act in the marketplace.
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The article Costco's Victorious 2012 originally appeared on Fool.com.Alyce Lomax has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale and The Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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