Stock splits always seem to attract the attention of investors, and for good reason: They generally involve companies that have performed so well when it comes to revenue and profit growth that their shares have soared.
Investors love looking at these top performers' next big moves. But there are two practical reasons why investors monitor the market for stock splits.
First, stock splits can bring the price of a stock back down to earth, making it more accessible to a broader range of investors. When a stock splits, a company issues more shares to current investors. As a result, each individual share will trade at a lower level, but the company's overall market capitalization remains unchanged. Because the stock is trading at a cheaper level, more investors may be able to buy shares.
Second, a stock split suggests a company is optimistic about its future, as the shares could once again take off and reach new highs.
A couple of years ago, technology stocks led the way, with the likes of Amazon and Alphabet launching stock splits. But in more recent times, major consumer goods stocks, such as Walmart and Chipotle, have announced stock splits after their shares climbed.
Missing from the scene so far, though, is a company that has seen earnings steadily advance over time and its share price roar past $780. I'm talking about warehouse company Costco (COST +0.82%). Could this top consumer stock be next to launch a stock split?
Image source: Getty Images.
Costco's success story
First, a little bit about Costco's success story. You may know the company best for its gasoline sales or bulk quantities of nuts and other food items at a great price -- or even for clothing and furniture. These items are very low margin for Costco, but the company makes a great deal of its profit from shoppers before they even set foot in the warehouse.
Costco scores a big win when it gets you to sign up for a membership, at either a standard or premium level. And the positive news here is Costco's renewal rates are extremely high, surpassing 90% in locations worldwide.
Memberships provide the retailer with a revenue stream that it can count on from year to year. This has helped Costco grow revenue and profit into the billions of dollars over time.
The company has done so well that it even offered shareholders a $15 per-share special dividend earlier this year. This isn't the company's first special dividend, but it's the highest yet.
Costco also managed to weather the difficult higher-inflation economy over the past couple of years. That's because, in tough times, consumers favor buying at a place like Costco, where they can find dirt cheap prices on essentials.
NASDAQ: COST
Key Data Points
Costco's most recent stock split
All of this has helped the stock price steadily climb, prompting investors to wonder whether this top retail company will launch a stock split. A look into the past shows us Costco's most recent split happened back in 2000, when the stock traded below $100. That's a far cry from today's level of more than $700. And earlier this year, the stock reached a record high and today, is trading less than $100 below that level. So Costco really could be ripe for a split.
That said, it's been quite some time since the last stock split. Costco has skyrocketed from that point -- yet the company hasn't launched one. Could Costco be next on the stock-split list?
It's impossible to predict what a company will decide, of course, but with the general stock market in bull territory, management may see this year as a good time to launch a stock split. Investors are excited about investing in the market right now, and a lower per-share price could make it easier for some to get in on this warehouse giant.
Whether Costco splits its stock or not, this retailer's earnings track record and solid business model that withstands even tough times makes it a top stock to buy and hold for the long term.
