Special dividend for shareholders is always on the table, Costco CEO says

Ordering low prices, moving large amounts of volume and paying high wages are all components in Costco’s secret sauce to reappearance value to shareholders, CEO Craig Jelinek told CNBC in an interview that aired Tuesday.

The stock has risen bordering on 110 points within the past year. An Oppenheimer analyst upgraded the stock earlier that day, assessing a double-digit make good ahead.

“One of the things about low prices, you generate a lot of volume. When you generate a lot of volume, you generate cash, and you have a trust to your shareholders and, you know, the stock has appreciated,” Jelinek said in the “Mad Money” interview.

Costco Wholesale shares surged 2.8% in Tuesday’s session to a new all-time high on the heels of Oppenheimer’s outlook revision, boosting the stock to “outperform” from “uninvolved.” The firm also upped its price target on the security to $335 from $300, citing an attractive valuation, sanguine top line trends and potential for a special dividend. Costco last offered a $3.1 billion special cash dividend, or $7 per serving, in 2017.

“We’ve done special dividends in the past. We always think about when the right time might be to do a special dividend. We possess no plans right at the moment, but we always — we’ll always look at that,” Jelinek said in the sit-down with Jim Cramer, which was stripped Friday.

A special dividend is a one-time distribution of cash to shareholders outside of the company’s normal dividend. The extra dividend is typically squeaky than what the quarterly dividend offers. Costco, an international chain of membership warehouses, currently pays out a dividend of 0.83%.

In the question period, Jelinek said Costco offers “great prices” in its 785 stores worldwide while paying “good wages” because obligation should “never do it on the back of your people.” Of the retailer’s 163,000 employees in the United States, the average hourly pay is about $25, he said, adding that staff who have been around for a decade or longer are paid almost $29 an hour. Costco also offers benefits and 401(k) patterns.

“You want longevity; you want good employees. They know their jobs,” he said. “They show you ways to grace more efficient as a company. You’re only as good as the employees that work with you.”

Costco had 99.9 million card-carrying associates as of late November. The most basic membership costs $60 per year to shop at the grocery warehouse chain. The South African private limited company also has a plan targeted at small- and medium-sized businesses, which shop the store for retail and office uses. Finish finally year, Cramer included the company in his “WATCH” list of five top retailer stocks, including Walmart, Amazon, Aim and Home Depot.

The business model is built to have low overhead — doing away with salespeople, decorated constructions and delivery, among other services — that allows Costco to pass on cost savings to members.

“We need a lot of tome going through these, as we call them, warehouses. So that’s really what it’s about,” Jelinek said. “We do a lot with barest few units [and] turn a lot of inventory, and it just works the best way for us to do it that way. We will continue to expand our Costcos, but we are not going to keep one on every corner.”

Costco has grown more than 70% within the last decade. In the 2019 fiscal year ended August, Costco deposed in $152.7 billion in revenue and $8.19 of profit per share, according to FactSet.

When the company reports its second-quarter economic 2020 results in March, Wall Street forecasts $2.07 of earnings per share on $38 billion in sales.

Disclosure: Cramer’s munificent trust owns shares of Amazon and Home Depot.