Tesla (TSLA) announced today that it will ask shareholders for permission to split its stock. No news yet on what the ratio of the split will be, but on the news shares of Tesla were up 8.03% at the close today, March 28, to $1,091.84.
That split comes on the heels of splits from Amazon (AMZN) and Alphabet (GOOG).
Which leads me to conclude that it’s time to buy shares of Costco Warehouse (COST).
Now Costco is one of my 10 Stock Picks for a Recession in my most recent Special Report on my subscription JubakAM.Com site. I like this stock for the coming downturn because the low-cost retailer manages to do more business in a recession as consumers strive to save money on everything fro gasoline to chickens to tube socks. And many of those consumers who used Costco to save–after paying a $60 membership fee–money will keep shopping at the store once the down turn is over. People like to save money, I’ve heard. (So a recession is actually a big opportunity for Costco to introduce itself to a larger audience and to build marketshare. While pocketing those $60 annual membership fees. Costco also has a history of hiking its membership fees every 5 or 6 years so the company is due to move for an increase in 2023. On past experience, the company will see a 90% renewal rate even after a price increase.)
But Costco also has a history of special dividends–four times in the last eight years. And while special dividend isn’t a stock split, I think the recent trend toward stock splits from companies with high-priced stocks will have an influence on when Costco issues that special dividend.
At the company’s last earnings conference call in December CFO Richard Galanti said: “It’s something that we’ve done four times in eight years. We, and the shareholders, seem to like it when we do it. And so I’m not trying to be cute, but we haven’t made that decision at this juncture. It’s probably a when, not if, but when will be when we do it.”
The company said that it’s capital spending plans for next year would be about $4 billion. That fits well within the budget for a special dividend. When the company did its last special dividend in December 2020 it paid the $4.4 billion expense from cash on hand. Right now the company has roughly $12 billion in cash and cash equivalents on its books.
A special dividend isn’t a split. Splits generate more enthusiasm–Look Billy, Tesla is giving away free shares–even though a shareholder doesn’t get anything extra in the transaction. A special dividend, on the other hand, actually puts cash in a shareholder’s pocket. (Although, that cash was the shareholder’s to begin with, if you think about it.)
The stock pays a 0.57% dividend and trades at a price to sales ratio of just 1.18.
Costco closed at $565.21 today, March 28, up 1.71%. I will the shares to my Jubak Picks Portfolio tomorrow, March 29, with a target price of $603 a share.
