Today I have $KR (-1,26%) added. What did you buy today?
Discussão sobre KR
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23#Kroger Co. Q3 FY2024 #EarningsReport Summary | $KR (-1,26%)
In Q3 FY2024, Kroger navigated the challenges of divestitures and macroeconomic uncertainties, achieving solid performance in key growth areas like digital and pharmacy. Despite a slight YoY revenue decline, strong operational strategies drove a gross margin increase.
📊 Income Statement Highlights (vs. Q3 FY2023):
▫️ Net Income: $618M vs. $646M (-4.33%)
▫️ Total Revenue: $33.63B vs. $33.96B (-1.01%)
▫️ Adjusted EPS: $0.98 vs. $0.95 (+3.16%)
▫️ Operating Profit: $828M vs. $912M (-9.21%)
▫️ Adjusted FIFO Operating Profit: $1.02B vs. $1.02B (-0.49%)
▫️ Gross Margin: 22.9% (+51 basis points)
▫️ Digital Sales: +11% YoY
▫️ LIFO Charge: $4M vs. $29M (-86.21%)
Key Particulars:
▫️Identical Sales (Excl. Fuel): +2.3% YoY
▫️Sale of Specialty Pharmacy reduced sales by ~$340M but improved gross margins.
💼 Balance Sheet Highlights (vs. Q3 FY2023):
▫️ Total Assets: $62.42B vs. $51.02B (+22.35%)
▫️ Total Liabilities: $49.52B vs. $39.83B (+24.35%)
▫️ Equity: $12.89B vs. $11.19B (+15.20%)
▫️ Cash and Investments: $13.36B vs. $1.73B (+672.26%)
Key Particulars:
Net Total Debt to Adjusted EBITDA improved to 1.21 from 1.40.
🔮 Future Outlook:
Kroger narrows its FY2024 guidance:
▫️Identical Sales Growth (Excl. Fuel): 1.20%-1.50%
▫️Adjusted EPS: $4.35-$4.45
▫️Adjusted FIFO Operating Profit: $4.6B-$4.7B
Strategic priorities include accelerating digital and loyalty programs, leveraging merger synergies with Albertsons (pending regulatory approval), and continuing cost efficiency initiatives.
What we can expect next week:
Monday:
- Empire State Manufacturing Survey
- Speeches by Fed President Patrick Harker and Fed Governor Lisa D. Cook
- La-Z-Boy ($LZB (+1,48%) ) publishes quarterly figures
Tuesday:
- Publications on retail sales, industrial production, capacity utilization and business inventories
- Quarterly figures by Lennar ($LEN (-1,12%) ) and KB Home ($KBH (-0,84%) )
- Speeches by various Fed Presidents (Logan, Barkin, Musalem, Goolsbee)
Wednesday:
- ⚠️Markt geschlossen⚠️ because of National Independence Day
- Publication of the Housing Market Index
Thursday:
- Initial claims for unemployment benefits
- Release of housing starts for May
- Quarterly figures from Accenture ($ACN (+0,97%) ), Kroger ($KR (-1,26%) ), Darden Restaurants ($D1RI34 ) and Jabil ($JBL (+1,5%) )
- Speech from Richmond Fed President Tom Barkin
Friday:
- Release of the S&P Global Flash Composite U.S. PMI
- Existing home sales figures
- Quarterly figures from CarMax ($KMX (-0,35%) )

So thanks for the overview
Looking for dividend companies that pay out in the months 3/6/9/12 .. In those months my dividend income is a lot smaller than others, so need to boost it up to support living costs. Currently only have small position in $HSY (-0,39%) and of course monthlies like $O (-0,52%) , $MAIN (-0,6%) and $HRZN . Preferably a high yielding one, but dividend growth may have to do, such as $KR (-1,26%) or $TSN (-0,89%) .. even looked at $MSFT (+1,32%) .
Any suggestions?
The upcoming week summarized:
Monday
- Publication of the quarterly reports of GitLab ($GTLB (+3,23%) )
- Speech by Philadelphia Fed President Tom Harker
Tuesday
- Release of factory orders (January) and the ISM Services PMI (February)
- Super Tuesday pre-elections in 16 states
- Quarterly reports from CrowdStrike ($CRWD (+2,47%) ), Target Corp ($TGT (+1,34%) ), Ross Stores ($ROST (+0,72%) ) and Nordstrom ($JWN (+0,33%) )
Wednesday
- Release of the ADP Employment Report (February)
- Statements from Fed Chair Jerome Powell before the House of Representatives
- Publication of wholesale inventories (January), job vacancies (January) and the Federal Reserve Beige Book
- Speeches from San Francisco Fed President Mary C. Daly and Minneapolis Fed President Neel Kashkari
- Quarterly reports from Campbell Soup ($CPB (-0,65%) ) and Abercrombie & Fitch ($ANF (-1,47%) )
Thursday
- Statements by Fed Chair Jerome Powell before the Senate
- State of the Union Speech
- Publication of initial applications for unemployment benefits (March 2), productivity (revisions to the fourth quarter) and the trade balance
- Speech by Cleveland Fed President Loretta Mester
- Quarterly reports from Broadcom ($AVGO (+2,75%) ), Costco Wholesale Corp ($COST (+0,14%) ), Kroger Company ($KR (-1,26%) ), Marvell Technology ($MRVL (+2,8%) ) and Victoria's Secret ($VSCO (+1,36%) )
Friday
- Release of the USlabor market report (February)
- Speech by New York Fed President John C. Williams

How do I select my dividend stocks? A step-by-step guide using $COST (+0,14%)
as an example
reading time: approx. 15mins
Disclaimer: This post was originally written in German and was translated into English for wider availability. Most information in the post pertains to the time of original article publishing and has not been adapted for the translation. However, I have utilized the most up-to-date annual reports specifically for the section that covers the key figures, and have made sure to update the relevant data accordingly. At that time, I purchased shares in Costco at a price of approximately 480USD per share. Right now Costco is the 2nd largest position in my portfolio.
I have been reading a lot of questions about which criteria are particularly important when selecting dividend stocks. I also come across the more general question of "which dividend stocks are worth buying?" While there is no universal answer to this question, every potential purchase of a stock requires intensive research, consideration of one's personal investment strategy, and investment horizon. Since both investment strategies and investment horizons are individual, I will concentrate on the research before purchasing. This post is intended to serve as a guide for you, which is, of course, subjectively tailored to my investment strategy and investment horizon. Nevertheless, with some abstraction, it can also be generalized to your needs.
1.) THE IDEA
At the beginning of a possible stock purchase is an idea. This is probably the part that is least "algorithmic" because it requires creativity, attention in everyday life, or possible specialized knowledge about a "hidden champion" in an industry. Therefore, I can only advise you to keep an open mind and be observant in your daily life. Possible starting points could be:
- What kind of products are available to purchase? Who produces them?
- What products do I use in my daily life and at work?
- What product could I not live without in my daily life?
- What is so expensive that one would prefer not to buy it, but it is still repeatedly purchased?
These are, of course, just a few possible questions. Let your creativity run wild to come up with possible exciting companies. Few of these ideas will be so exciting that you will end up investing in them. Rather, the goal is to build up a pool of ideas to invest in the most promising companies after a thorough analysis.
So how did I end up with Costco $COST (+0,14%) ? It was a combination of little things: through research on dividend stocks in the retail sector, I initially came across Walmart $WMT (-0,63%) and Target $TGT (+1,34%) I didn't look at them closely but put them on my watchlist prophylactically to take a closer look later.
A few days later, I saw that Walmart and Target were deep in the red and wondered why both were rapidly falling. Then I read a small news article that said one of them had published poor quarterly results, causing the entire retail sector to plummet. The article mentioned a retailer called Costco Wholesale and a few others that were now facing tough times. I had only vaguely heard of Costco before and decided to take a closer look. Costco caught my attention among all the other retailers mainly because despite the high loss on that day, with a P/E ratio over 30, it still seemed absurdly expensive.
2.) UNDERSTANDING THE BUSINESS MODEL & IDENTIFYING COMPETITION
In the next phase of my research, I delve deeply into the business model and competition of the company, seeking to understand the unique features that set it apart from the competition. Despite its apparent simplicity as a supermarket chain, Costco Wholesale has several interesting features that distinguish it from other players in the retail industry. To uncover these features, I conducted extensive research using a variety of sources, including online news articles, industry reports, and expert analyses. By exploring topics such as "Why customers prefer Costco?" and "How does Costco earn money?" I was able to gain valuable insights into the company's business model and identify key factors that contribute to its success [1], [2], [3]:
1. Retail As A Service! Costco Wholesale is one of the largest retail chains in the world, known for offering bulk goods at discounted prices to its members. But what sets Costco apart from other players in the retail industry is its unique business model: the company operates on a membership-only basis, requiring customers to pay an annual fee before they can shop at Costco stores. Currently, Costco offers two membership tiers: the basic membership, which costs $60 per year, and the premium membership, which costs $120 annually. According to a report by [4], approximately 91% of existing members renew their membership each year, and the company continues to attract new members at a rate of 5-7% annually. In addition to providing access to the company's retail stores, Costco's premium membership also includes a 2% cashback reward on purchases made at Costco, incentivizing customers to shop more frequently at the chain. This unique membership model has been a key factor in Costco's success, as it allows the company to build a loyal customer base while also generating a reliable stream of recurring revenue.
2. Customer is King! Time and again, Costco Wholesale has been praised for the exceptional friendliness of its employees, who are known for going above and beyond to provide a high-quality shopping experience for customers. While this may seem like a given, we've all experienced stores where customers are treated rudely or with indifference. At Costco, the company's commitment to providing a positive customer experience is reflected in every aspect of its operations, from its well-trained staff to its generous returns policy. One of the hallmarks of Costco's returns policy is its 100% money-back guarantee, which promises to refund the full purchase price of any product purchased from the store. This policy has made headlines in recent years, with stories of customers returning everything from withered Christmas trees [5] to used tires and half-eaten food items. In each case, Costco has readily accepted the return and refunded the customer's purchase price without question. It's this kind of customer-centric approach that has helped to build Costco's reputation as a retailer that truly puts its customers first. Of course, it's worth noting that while Costco's returns policy is incredibly generous, it's also been carefully designed to minimize the number of returns the company actually receives. By offering customers the peace of mind of knowing that they can return a product if they're not satisfied, Costco encourages them to make purchases without hesitation. In reality, however, very few customers actually end up returning their purchases, a fact that speaks to the high quality of the products on offer at Costco.
3. Unbeatably cheap! One of Costco Wholesale's biggest selling points is its unbeatable prices. By purchasing its products in massive quantities, Costco is able to secure significant discounts from suppliers, which it then passes on to customers by keeping its own margins low. This strategy has proven highly effective in positioning Costco as a more affordable alternative to competitors like Walmart and Target [6]. Costco is upfront with customers about its pricing strategy, openly communicating that it offers the lowest prices possible thanks to its bulk buying approach. Customers can rest assured that they are getting the best possible value on their purchases when shopping at Costco. In addition to bulk buying, Costco also keeps prices low by offering larger package sizes and promoting its own private label brand, Kirkland. By streamlining its inventory to just 4,000 products, as opposed to Walmart's 142,000 products [6], Costco is able to focus on offering a curated selection of high-quality items at the lowest possible prices.
4.) Top Tier Employer! Costco Wholesale is widely recognized as one of the best employers in the retail industry. One key factor that sets Costco apart from its competitors is its commitment to paying its employees a relatively high average hourly wage of $15 (compared to Target's $13 and Walmart's $11). This focus on employee compensation, along with other employee-centric policies, has helped to create a strong sense of job satisfaction and loyalty among Costco's workforce, which in turn has resulted in lower staff turnover rates and significant cost savings for the company. By prioritizing employee satisfaction, Costco has been able to keep recruitment and training costs low, as well as minimize the number of open positions and unfilled vacancies. This strategy has proven highly effective, as the company consistently ranks among the top-rated employers in the world, alongside industry leaders like Microsoft, Alphabet, and T-Mobile [7].
In essence, Costco's business model can be thought of as a subscription model, providing access to a unique range of products at particularly affordable prices. The company is committed to customer satisfaction and uses measures such as a money-back guarantee and cashback programs to build customer loyalty. The subscription model also promotes customer loyalty and ensures predictable cash flows. Despite paying its employees well, Costco remains one of the most affordable supermarkets, thanks to low margins on sales and other clever tactics, attracting a large number of new customers.
This sets Costco apart from its competitors, which include well-known retail giants such as Walmart ($WMT (-0,63%)), Target ($TGT (+1,34%)), Kroger ($KR (-1,26%)), and Dollar General ($DG (+0,56%)). While a closer look at their business models is also important, it is beyond the scope of this post to provide an equally in-depth analysis of their business models.
3.) SELECT & CHECK KEY FIGURES
Now that we've gained an understanding of what sets Costco apart from its competitors, it's time to turn our attention to hard data and performance metrics. After all, if Costco truly does things better than its competitors, we should expect to see evidence of that in a range of key performance indicators (KPIs).
Of course, the specific KPIs that matter most will depend on the nature of the company and its overall strategy. Personally, when evaluating stocks, I tend to focus on companies that have a track record of paying solid dividends over a long period of time, with above-average dividend growth rates. I also look for stable revenue and profit growth, as well as a business model that is as crisis-resistant and non-cyclical as possible. Finally, I want to see that the company is reinvesting its earnings in profitable ways that will support future growth.
By selecting and analyzing the right KPIs, we can gain a deeper understanding of how Costco's business model is performing relative to its peers. This, in turn, can help us make more informed investment decisions and determine whether Costco is truly delivering on its promise of providing unbeatable value to customers and investors alike.
These requirements lead me to the following selection of fundamental data:
- Revenue and profit growth
- Dividend history and dividend growth
- ROCE
- Payout ratio dividend / free cash flow
- As low as necessary debt
Now, let's work through all of these indicators one by one. I always compare them within the industry and put Costco's numbers in relation to those of competitors like Walmart and Target. All the necessary figures for the calculation were taken from [8].
Revenue Growth
The total revenue growth over the last 5 years is:
Costco 60.7% | Walmart 24.2% | Target 41.5%
This corresponds to an average annual revenue growth rate (CAGR) of:
Costco 10.0% | Walmart 4.4% | Target 7.2%
Costco and Target have the strongest revenue growth, with Costco growing the fastest. At around 10% per year, this growth rate is impressive even when compared across different industries.
Profit Growth
The total EBIT growth over the last 5 years is:
Costco 84.4% | Walmart 19.0% | Target 22.7%
This corresponds to an average annual EBIT growth rate (CAGR) of:
Costco 13.0% | Walmart 3.5% | Target 4.2%
Once again, Costco comes out on top, and by a significant margin. While Walmart and Target may be able to increase their revenues, their profits do not grow at the same rate. At Costco, profits are actually increasing faster than revenues, indicating a healthy and scalable business model.
Dividend History and Growth
Costco has been paying a dividend for 19 years, with the dividend increasing every year. Currently, the dividend yield is 0.57%, and the annual dividend growth rate over the last 5 years is 12.4%, with the last 10 years at 12.6%. In addition, there have been irregular special dividends paid out to shareholders (last one in January 24 with 15USD per share).
Walmart has been paying a dividend for 50 years and has also increased it every year. Currently, the dividend yield is 1.40%, and the annual dividend growth rate over the last 5 years is 1.85%, with the last 10 years at 2.02%.
Target has been paying a dividend for 55 years, with an annual increase each year. Currently, the dividend yield is 3.19%, and the annual dividend growth rate over the last 5 years is 11.59%, with the last 10 years at 10.68%.
Target and Walmart clearly stand out with their long and impeccable dividend histories. However, I have nothing to complain about with Costco's dividend history, as the dividend has been increased every year since its introduction. In terms of the current dividend yield, Target is ahead of Walmart, with Costco in last place. However, I do not place too much importance on this point, as my personal focus is more on dividend growth. I prefer a fast-growing dividend, as this will allow me to benefit more in the future. In this respect, Costco shows stable dividend growth of approximately 12% annually. Target is almost as good in this regard, with only Walmart falling slightly behind with its meager dividend growth.
ROCE
The Return on Capital Employed, is a measure (in %) of the efficiency of capital employed in a company's operations. A high ROCE indicates that earnings can be reinvested in the business in a profitable manner. It has become an indispensable key performance indicator for me, as it is an excellent indicator of a company's efficiency. A low ROCE is even a disqualifying criterion for me, especially when the ROCE is lower than the company's cost of capital. For a detailed definition and interpretation of ROCE, I refer to a post I wrote. In short, the higher the ROCE, the better.
The average ROCE of the last 6 years is:
Costco: 22.1% | Walmart: 15.9% | Target: 19.1%
Target is still close to Costco, but Walmart is already significantly worse than Costco. Therefore, according to the common interpretation of ROCE, Costco has the most capital-efficient business model of the three companies. Together with Costco's high EBIT growth, the high ROCE becomes even more interesting, as ever-increasing earnings can be efficiently reinvested in the business, enabling future profit growth.
Payout Ratio Dividend / Free Cash Flow
Currently, Costco pays out about 27% of its free cash flow in dividends to its shareholders. Walmart's payout ratio is 21.1%, and Target's is 28.7%. Thus, dividend payments at all three companies are securely covered by the generated cash flow, leaving enough cash flow for investments in business operations.
To be able to calculate this payout ratio, a company must of course pay a dividend that is somehow generated from the free cash flow. This eliminates all companies that have negative free cash flow. For companies with a higher dividend yield, the payout ratio is usually slightly higher. Personally, I find anything up to 80% okay; anything above that should be examined more closely. It may be a one-time effect that will normalize afterwards. If not, a dividend cut may be imminent, as dividends may soon no longer be covered by cash flow. In the case of REITs, the situation is somewhat different, as they are tax obligated to have high payout ratios. Therefore, my limits are different for REITs.
Debt and Cash
Long-term debt of companies should be monitored not only since the rise of interest rates, but especially now. High debt levels result in high interest expenses, which can have a negative impact on future earnings and potential investments in business operations. In particular, increasing refinancing costs can then lead to a negative leverage effect, which can have a massive impact on debt even with slightly rising interest rates.
For me, a healthy level of total debt is anything under three times EBIT/EBITDA. Here, in the worst case, debts can be paid off within three years from the company's earnings (exceptions apply to REITs, as the business model of REITs relies on taking on debt to finance properties).
Costco has almost twice as much cash reserves as it has long-term debt. In theory, they could pay off all debts immediately and still have cash reserves left over. The ratio of debt to EBIT is particularly low at 0.8, as all debts could be paid off from the business earnings within a year.
Walmart has about three times as much debt as cash reserves. Therefore, about a third of the debt could be paid off from the available cash. The ratio of debt to EBIT is 1.8, which is fine and in the green zone.
Target has about 8 times more debt than cash reserves, and only 12.5% of the debt could be paid directly from cash. The debt is about 3x EBIT, so Target would need about 3 business years to pay off the debt from the earnings.
All three companies are not over-indebted, but once again Costco stands out with such low debt that all debts could be paid off immediately. The available cash reserves are also advantageous in case of future major investments. However, it should not be left unmentioned that Walmart and Target are also not excessively indebted.
4.) INVESTMENT THESIS
If we now summarize the analysis of the business model and fundamental data, a coherent and clear picture emerges for me:
1. The business model in the form of a "Retail As a Service" model sets Costco apart from its competitors. Costco is growing rapidly, is more efficient than its competitors, and generates strong customer loyalty through various factors.
2. The dividend payments are securely covered by free cash flow, and there is a consistently high dividend growth. The dividend growth corresponds to approximately the EBIT growth.
3. Costco is more capital efficient than its competitors. The higher ROCE enables Costco to reinvest its earnings profitably in its own business operations.
4. Costco can finance growth almost w/o debt and has significant financial leeway for future expansions. Higher capital procurement costs will have little impact.
I will review these 4 points at regular intervals after purchase. If there is a bad business year, I will not throw everything overboard. The overall picture over a longer period always remains important. Therefore, the individual points are rather "soft" criteria on their own. However, if all points show a negative trend, the investment thesis would no longer be intact and the assumed business model at the time of purchase would no longer work.
5.) SUMMARY & OUTLOOK
We have now formulated an investment thesis step by step, starting with the idea and then analyzing the business model and fundamental data. This thesis summarizes why we invested in the company and is also a guideline for the expected future development of the company. The resulting checklist provides an exit criterion in case of doubt.
What is missing here? The attentive reader will have noticed that we haven't even talked about the price of a share yet. The company may be as great as it is, but at what price do I now buy a share? This is a completely different topic from selecting the right company. If there is interest from your side, I can also prepare a post on this topic. Also, I would like to thank the reader who made it this far for their attentive reading. Questions and criticism are always welcome.
SOURCES:
[1] https://www.eatthis.com/costco-shoppers-obsessed/
[2] https://www.huffpost.com/entry/12-costco-secrets-you-didnt-know-y_n_55e70a56e4b0c818f619dc20
[3] https://www.businessinsider.com/why-people-love-costco-and-kirkland-private-label-2019-9?op=1
[5] https://clark.com/family-lifestyle/costco-christmas-tree-return-january/
[6] https://www.mashed.com/158143/the-truth-about-costcos-really-low-prices/
[7] https://www.businessinsider.com/comparably-big-companies-with-the-happiest-employees?op=1

Finally added to the portfolio. $KR (-1,26%) has proven itself in past crises and is not easy to imagine everyday life without, moreover, the share brings for me:
-price potential available
-Takeover of $ACI (-2,04%)
-Strong dividend growth over the last 10 years at 13.5 percent
-Consistently buying back shares
-Dividend payout ratio on FCF is 34 percent
How do I choose my dividend stocks? A step-by-step guide using the example of $COST
Reading time: approx. 15min
Lately I have been reading questions about which criteria are particularly important when selecting dividend stocks. The question "Which dividend stocks are worth buying?" is also a somewhat less specific one. Of course, this can never be answered in general terms. Every potential purchase of a share involves intensive research, a personal investment strategy and your own investment horizon. Since both the investment strategy and the investment horizon are individual, I focus on the research before the purchase. This post should serve as a guide for you. Of course, this is initially completely subjective and tailored to my investment strategy and investment horizon, but with a little abstraction it can also be generalized to your needs.
1) THE IDEA
A potential share purchase starts with an idea. This is probably the part that can be handled the least "algorithmically", because it requires creativity, attention in everyday life or possible specialized knowledge about a "hidden champion" in an industry. As a result, I can only advise you to go through your everyday life with your eyes open. Possible starting points are, for example
- What products are there to buy? Who manufactures them?
- What kind of products do I work with in my everyday life and at work?
- Which product could I not do without in my everyday life?
- What is so expensive that you don't really want to buy it, but you keep buying it anyway?
Of course, these are just a few possible questions. Give free rein to your creativity to come up with possible exciting companies. Very few of these ideas will be so exciting that you end up investing in them. It's more about building up a pool of ideas so that you can invest in the most promising companies after a detailed analysis.
How did I come across Costco $COST (+0,14%) come about? It was a combination of small things: while researching dividend stocks in the retail sector, I first came across Walmart $WMT (-0,63%) and Target $TGT (+1,34%). I didn't look at them too closely, but I put them on my watchlist as a precaution so that I could take a closer look at them later.
A few days later I saw that Walmart and Target were deeply in the red and I wondered why both were falling rapidly at the same time. Then I read a small news article which said that one of the two had published poor quarterly figures and that the whole retail sector was sliding into the red. Among other things, the article mentioned a retailer called Costco Wholesale and a few others that were now facing hard times. I had only been vaguely aware of Costco and decided to take a closer look. Among all the other retailers, Costco piqued my interest mainly because it still seemed absurdly expensive with a P/E ratio of over 30, despite the high loss on that day.
2) UNDERSTANDING THE BUSINESS MODEL & RECOGNIZING THE COMPETITION
OK, so we have an idea: Costco Wholesale it should be. The idea is there, but what exactly do I do now?
In the next step, I always take a close look at the company's business model and competition. I want to understand the business model understand and find points that make the company different from the competition. This may sound trivial, but unfortunately many people seem to be negligent. Costco is a supermarket chain, right? So they buy their goods from the producers, put a solid margin on top and then sell them en masse in their own stores. That's it. So why bother with the business model when I already understood it?
As always, the devil is in the detail. Costco sells goods in its own department stores, of course, but there are also many other things that are particularly interesting and in which they stand out from the competition. The starting point for my research is simple Google searches of the form "Why do customers prefer Costco?", "How does Costco earn money?" or similar. Examples of the results of such a search can be found in [1], [2] and [3]. The quintessence of my research is as follows:
1) Retail As A Service! Before you can shop in the Costco stores, you have to take out a membership. This currently costs $60 in the cheapest version and $120 per year in the premium version and is renewed by around 91% of existing members [4]. New members are added every year, so that the number of members grows by around 5-7% each year. With the Premium membership, you also receive a 2% cashback reward for purchases at Costco and are rewarded for buying more at Costco.
2) The customer is king! It is mentioned again and again that Costco employees are considered to be particularly friendly. This may be self-evident, but we all know stores where customers tend to be treated rudely or dismissively. There is also a one hundred percent money-back guarantee that keeps its promises. For example, a woman who brought her Christmas tree, which she had bought at Costco, dried out to a Costco store in January and got her money back without any problems made headlines [5]. There are similar reports about worn tires or used food packages. In all cases, the goods were taken back and the customers got their money back. Of course, word gets around and gives customers the feeling that they can buy something if they are unsure whether they will be satisfied with the product they have bought. If in doubt, they can simply return it. The fact that this rarely happens on the customer side is of course planned by Costco.
3) Unbeatably cheap! Costco buys its goods in huge quantities and thus receives large discounts. These favorable purchase prices are deliberately passed on to customers with a small margin in order to be cheaper than the competition around Walmart, Target and Co. [6] This is also openly communicated by Costco to the customer. As a result, customers know that they will most likely not be able to shop anywhere cheaper than at Costco. The low price is also achieved through larger containers and the low-cost private label "Kirkland". In addition, Costco relies on a rather reduced range with "only" 4,000 products, whereas Walmart has over 142,000 different products in its range [6].
4) Top employer! Costco pays its employees a relatively high average hourly wage of 15$ (Target 13$, Walmart 11$). This and other details ensure a high level of satisfaction and identification among employees and a lower frequency of job changes. As a result, Costco even saves costs, as employee acquisition and unfilled vacancies also cost a lot of money. This is why Costco is consistently among the highest rated employers, alongside employers such as Microsoft, Alphabet or T-Mobile [7].
In summary, Costco's business model can be seen as a kind of subscription model in which access to a unique range of products is granted at particularly low prices. The company is unconditionally committed to customer satisfaction and ensures customer loyalty through means such as a money-back guarantee and cashback programs. The subscription model also ensures customer loyalty and predictable, growing cash flows. Thanks to low margins on the sale of goods and other clever means, Costco is usually the cheapest supermarket despite its well-paid employees and thus attracts many new customers.
This sets Costco apart from the competition. Speaking of the competition: this is relatively easy to research, as it involves well-known retail giants such as the aforementioned Walmart $WMT (-0,63%) and Target $TGT (+1,34%)but also Kroger $KR (-1,26%) and Dollar General $DG (+0,56%). A closer look at the business models of the competition should also be taken, but is beyond the scope of this post, so I will spare you a similarly detailed analysis of the business models of the competition at this point.
3) SELECT & CHECK KEY FIGURES
We now think we have understood the business model and recognized what differentiates Costco from the competition. Admittedly, all of the previous points are rather subjective. So it's time to look at the hard facts. After all, if Costco is really doing so many things better, this must be reflected in various key figures.
Of course, the right choice of metrics depends on the type of company and personal strategy. Personally, I mainly focus on companies that pay solid dividends over a long period of time and have above-average dividend growth. In addition, there should be stable sales and profit growth so that you can afford the continuously rising dividends. The business model should be as crisis-proof and non-cyclical as possible and the income generated should be able to be reinvested profitably in the company.
These requirements lead me to the following selection of fundamental data:
- Sales and profit growth
- Dividend history and dividend growth
- ROCE
- Payout ratio dividend / free cash flow
- Lowest possible debt
Now let's work through all the key figures in sequence. I always make industry-specific comparisons and compare Costco's figures with those of its competitors Walmart and Target. All figures required for the calculation were taken from [8].
Sales growth
Sales growth over the last 5 years totaled
Costco 63.2% | Walmart 19.9% | Target 49.4%
This corresponds to a compound annual growth rate (CAGR) of
Costco 10.3% | Walmart 3.7% | Target 8.4%
Costco and Target sales are growing the most, with Costco growing the fastest. At around 10% per year, this is also impressive across all sectors.
Profit growth
EBIT growth over the last 5 years has totaled
Costco 72.6% | Walmart 14.9% | Target 11.6%
This corresponds to average annual EBIT growth (CAGR) of
Costco 11.5% | Walmart 2.8% | Target 2.2%
Costco is also ahead here, and quite clearly so. Apparently, Walmart and Target are able to increase their sales, but earnings are not growing at the same rate. At Costco, profits are actually growing faster than sales, which indicates a healthy and scalable business model.
Dividend history & growth
Costco has been paying a dividend for 18 years and has increased it every year so far. The current dividend yield is 0.72% and the annual dividend growth over the last 5 years is 12.4%, and 12.6% over the last 10 years. In addition, high special dividends are paid to shareholders at irregular intervals.
Walmart has been paying a dividend for 49 years, which has been increased every year so far. The current dividend yield is 1.53% and the annual dividend growth over the last 5 years is 1.89%, and 3.56% over the last 10 years.
Target has been paying a dividend for 54 years, which has been increased every year. The current dividend yield is 2.49%. Annual dividend growth over the last 5 years has been 10.2%, and 11.6% over the last 10 years.
Of course, Target and Walmart score points here with their very long and impeccable dividend history. However, I have nothing to criticize about Costco's dividend history either, because like the other two, the dividend has been increased every year since its introduction. In terms of current dividend yield, Target is ahead of Walmart, with Costco in last place. However, I don't attach too much importance to this point as my personal focus is more on dividend growth. I prefer a fast dividend growth as I can benefit more from it in the future. In this respect, Costco shows stable dividend growth of around 12.5% annually. Target is almost as good here, with only Walmart falling slightly behind with its meagre dividend growth.
ROCE
The ROCE - i.e. Return on Capital Employed - is a measure (in %) of the efficiency of the capital employed for business activities. A high ROCE indicates that the income generated can be profitably reinvested in business activities. It has become an indispensable key figure for me, as it is a very good indicator of a company's efficiency. A low ROCE is even an exclusion criterion for me, especially if the ROCE is lower than the company's own cost of capital.
For a detailed definition and interpretation of ROCE, I refer you to a post I recently wrote -> https://app.getquin.com/activity/FLcMGnxVnO?lang=de&utm_source=sharing. Simply and briefly summarized: the higher the ROCE, the better.
The average ROCE over the last 6 years is
Costco: 22.1% | Walmart: 15.9% | Target: 19.1%
Target is still close to Costco, but Walmart is already significantly worse than Costco. True to the common interpretation of ROCE, Costco has the most capital-efficient business model of the three companies. Together with Costco's high EBIT growth, the high ROCE becomes doubly interesting: ever higher earnings can be efficiently reinvested in business activities and thus enable increasing earnings in the future.
Payout ratio dividend / free cash flow
Costco currently pays out around 21% of its free cash flow in dividends to shareholders. This figure is 23.5% for Walmart and 33.7% for Target. This means that dividend payments at all three companies are reliably covered by the cash flow generated. This leaves enough cash flow for investments in business activities.
In order to be able to form this payout ratio at all, a company must of course pay a dividend that is generated in some way from free cash flow. This already excludes all companies with negative free cash flow. For companies with a higher dividend yield, the payout ratio is usually somewhat higher. Personally, I think anything up to 80% is still ok; anything above that should be looked at more closely. It is possible that this is a one-off effect and that things will normalize again afterwards. If not, a dividend cut could soon be on the cards as dividends could soon no longer be covered by cash flow. The situation is somewhat different with REITs in particular, as they are obliged by tax law to have high payout ratios. In this respect, my limits are different for REITs.
Debt and cash
It is not only since the rise in interest rates - but now all the more so - that attention should be paid to companies' long-term debt. Excessive debt results in a high interest burden, which can have a negative impact on future earnings and potential investments in business activities. Rising refinancing costs in particular then create negative leverage, which can have a massive impact on the debt burden even if interest rates rise only slightly.
For me, a healthy level of total debt is anything below three times EBIT/EBITDA. In the worst case, the debt can be paid out of the company's earnings within three years (exceptions also apply here for REITs, as the business model of REITs is based on taking on debt to finance real estate).
Costco has almost twice as much cash reserves as it has long-term debt. Theoretically, they could pay off all their debts immediately and still have cash reserves left over. The debt to EBIT ratio is also particularly low at 0.8, as all debts could be paid off within one year from the profit from operations.
Walmart has around three times as much debt as cash reserves. This means that around a third of the debt could be paid off from the available cash. At 1.5, the ratio of debt to EBIT is in order and in the green zone.
Target has about 20 times more debt than cash reserves and therefore only 5% of the debt could be paid directly from cash. Debt is about three times EBIT, so Target would need about 3 fiscal years to pay debt out of earnings.
All three are not overindebted, but Costco scores again with such a low level of debt that all debts could be paid directly. The existing cash reserves are also an advantage if larger investments are required in the future. Nevertheless, it should not go unmentioned that both Walmart and Target are not overly indebted.
4) INVESTMENT THESIS
If we now summarize the analysis of the business model and the fundamental data, a coherent and clear picture emerges for me:
1) The business model in the form of a "Retail As a Service" model sets Costco apart from the competition. Costco is growing fast, is more efficient than the competition and generates strong customer loyalty with many factors.
2) The dividend payments are securely covered by free cash flow and there is consistently high dividend growth. Dividend growth roughly corresponds to EBIT growth.
3) Costco is more capital efficient than the competition. The higher ROCE enables Costco to reinvest its earnings profitably in its own business activities.
4) Costco can finance its growth almost without debt and has a large financial scope for future expansion. Higher capital procurement costs will have hardly any impact.
In conclusion, I formulate my investment thesiswhich I regularly check for plausibility after the purchase: "Buy, Hold and Check" is the motto here. Only if you formulate this directly at the time of purchase can it be checked later on the basis of facts whether our original thesis is still intact at the time of purchase.
My investment thesis for Costco is as follows:
1.) Customer loyalty: Memberships and thus the number of customers continue to grow.
2) Capital efficiency: a ROCE of at least 20%. Ideally higher.
3) Dividend growth: dividend growth should average at least 8% per year.
4) Sales/profit growthBoth should grow at an average rate of around 8% per year so that dividend growth is covered by rising earnings.
I will review these 4 points at regular intervals after the purchase. If there is a bad financial year, I will not throw everything overboard. The overall picture over a longer period of time is always important. In this respect, the points individually are rather "soft" criteria. However, if all the points point in the wrong direction, the investment thesis would no longer be intact and the business model assumed at the time of purchase would no longer work.
5) SUMMARY & OUTLOOK
We have now formulated an investment thesis step by step, starting with the idea, analyzing the business model and analyzing the fundamental data. This summarizes in the form of criteria why we have invested in the company and is at the same time a guideline for the expected future development of the company. The resulting "checklist" provides an exit criterion in case of doubt.
What is still missing here? The attentive reader will have noticed that we have not yet discussed the price of a share. The company may be great as it is, but at what price do I buy a share? This is a completely different topic from choosing the right company. If you are interested, I can also prepare a post on this topic. I would also like to thank the readers who have made it this far for their attentive reading. As always, questions and criticism are welcome.
#costco
#dividenden
#dividendenwachstum
SOURCES:
[1] https://www.eatthis.com/costco-shoppers-obsessed/
[2] https://www.huffpost.com/entry/12-costco-secrets-you-didnt-know-y_n_55e70a56e4b0c818f619dc20
[3] https://www.businessinsider.com/why-people-love-costco-and-kirkland-private-label-2019-9?op=1
[5] https://clark.com/family-lifestyle/costco-christmas-tree-return-january/
[6] https://www.mashed.com/158143/the-truth-about-costcos-really-low-prices/
[7] https://www.businessinsider.com/comparably-big-companies-with-the-happiest-employees?op=1


Moin, which of your stocks have put away the last two days in plus? For me it was $AAPL (+0,28%)
$KR (-1,26%)
$MC (+0,33%) and $WM (+0,26%)