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When you invest in stocks, there are two different ways you can make money. First, you can hold onto your shares until their value increases, and then sell those shares at a profit. Secondly, you can earn income when the companies whose shares you own pay dividends.
When a company pays dividends, it's sharing its profits with its investors. Companies are not required to pay dividends. And they're certainly not required to raise them.
But recently, Costco announced it was increasing its stock dividend. And that could be good news for members who are worried about their fees rising soon.
It's clear that Costco is in a pretty good place
Paying dividends doesn't always mean that a company is strong financially. Similarly, companies that opt not to pay dividends aren't necessarily losing money and drowning in debt. Rather, often, they're simply choosing to reinvest in the business rather than give shareholders a payday.
However, it's not unreasonable to draw the conclusion that an increased dividend is indicative of a strong balance sheet. And if Costco is in good enough shape to reward investors with a higher dividend payout, then it may be in good enough financial shape to keep membership fees where they are through the end of the year, and possibly beyond.
What we know about Costco fee hikes
Many people are on a tight budget these days due to lingering inflation. So for some Costco members, the idea of having to pay more to shop at the store is troubling.
Right now, a basic Costco membership costs $60 a year, while an Executive membership costs $120. Based on previous fee hikes, those prices could increase to $65 and $130, respectively, should Costco decide to move forward with a new cost structure.
Now, one thing that's clear is that current Costco members should expect their fees to increase at some point. But former CFO Richard Galanti, who departed in March, has danced around the topic during recent earnings calls.
In late 2023, when asked about a fee hike, Galanti gave the answer, "It's a question of when, not if." Galanti also acknowledged that it had been some time since the company's last fee hike in June 2017. However, it's also pretty clear that Costco isn't in a rush to raise membership fees.
As of its most recent fiscal quarter, Costco's membership base sat strong at 73 million people, a figure presenting an increase of almost 8% from the previous year. So as long as Costco continues to generate a nice amount of revenue from membership fees, it may not move quickly on a price increase.
That said, you should brace for it at some point. As a general rule, if you're getting good value out of your Costco membership at the current price point, then it will probably make sense to keep your membership even if its cost rises modestly. And if you're struggling to make ends meet, consider setting those few extra dollars aside when you can in case the cost of shopping at Costco increases. You don't want to end up in a position where you have to give up your membership due to a higher cost, as that could mean paying more for groceries and household essentials throughout the year.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Gala. The Motley Fool has a disclosure policy.
