Breaking Down Costco's $7 Dividend

Today is the last day for investors to buy Costco Wholesale Corporation COST shares and be eligible to receive the company’s $7 special dividend to be paid out on May 26. Dividend capture traders will be looking for the best time to dump their shares on Thursday as well.

Costco announced the special dividend on April 25 after the market close. On that day, the stock finished at $165.58. However, the dividend announcement sent shares higher by more than $4 per share the following day. By early May, Costco shares peaked at $175.55, roughly $10 per share higher than its closing price on April 25.

Related Link: The Ins And Outs Of Dividend Capture Strategy

In theory, like every other dividend, Costco’s special dividend doesn’t add any net value to Costco’s stock. The company will be paying the dividend from the cash on its balance sheet, which is already priced into each share of stock. Since Thursday is the ex-dividend date, the cash value of the $7 dividend will no longer be reflected in Costco shares from that point forward, and the market should adjust accordingly.

Traders should expect a $7 per-share drop in Costco’s share price in an efficient market. However, dividend capture traders are hoping they can dump their shares at a premium before the market fully adjusts.

The $7 payment represents roughly a 4 percent yield based on Costco’s current share price. Large special dividends are nothing new for Costco investors. In December 2012, the company paid out a $7 special dividend, and in May 2015 it paid out a $5 special dividend.

Joel Elconin contributed to this article.

Image Credit: By Namiwoo (Own work) [CC BY-SA 3.0], via Wikimedia Commons