Why Costco Is An Unhealthy Firm Essay

1292 Words Dec 14th, 2016 6 Pages
Dividends, dividend growth rate and percentage yield are all important factors when evaluating a firm’s worth and the value associated with investing in the company. While dividends are an integral part of this examination, it is important to remember that dividends alone do not determine the health of a firm. Each publically traded company has their own unique dividend policy that may or may not attract a certain type of investor. Dividend Ex-1

Costco is the outlier of the three firms and has paid out either no, or very minimal dividends to its investors. However, this does not mean that Costco is an unhealthy firm. They are simply equipping the clientele effect and targeting a certain type of investor. Their target investor does not need the current dividend income and would rather see their earnings reinvested, taking advantage of a tax break on earnings. Because Costco doesn’t pay dividends, analysis of its ratios would be pointless. Instead, we need to understand that Costco is targeting a different investor than either Walmart or Kroger. These two firms, on the other hand, should be examined and measured against each other.
As seen above (Dividend Ex-1), Walmart has the highest payout of the three companies. Annual dividends from 2012-2016 have been $1.56, $1.81, $1.91, $1.95 and $2.00, respectively per share. This would attract an investor who is looking to receive some current income from their investment. Another reason why investors may favor this policy is…

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