Sunday, August 22, 2010
COSTCO http://www.costco.com/ Annual report link Stock quote COST Have you ever been to one of their warehouses? 3rd largest retailer in US. It's like Sam's but they do almost twice the business as Sam's per location. They are #25 on the Fortune 500 list, 550 locations, their average warehouse does $3mill / week they stock only 4000 items as opposed to 40,000 for typical retailers. Nobody steals from them (shrinkage is less than 0.16%), ID's checked at the door (membership plan). Since 2005 they have bought back 17% of their stock float, and pay 1.48% dividend as well. I say "as well" (I hate Maria Bartiromo's constant use of this term as gibberish filler because she doesn't know what else to say to sound important) AS WELL because in the transaction of a buyback, money comes from COSTCO to the SHAREHOLDER exactly as a DIVIDEND does. It is most similar to the BOND equivalent of PRINCIPAL REPAYMENT at maturity. It has the added benefit of reducing the denominator for future per share calculations, such as earnings, etc. Strangely, many analysts don't like this tactic, however it has worked well through the years for the Best Stock of AllTime- Philip Morris (Altria). Despite improvements per share, and overall absolute improvement in sales, the stock is at 50% SwingForce from its 2007 high-2008 low. An improving sales & profit picture should be amplified in the per share numbers, pushing this stock much higher. But today, the focus is on the nominal divd 1.48% which is lower than MO 6.00%+, so COST gets left behind. The point I intend to make in the next few emails is PENSION FUNDS need to invest money. And there aren't enough bonds that yield enough % to meet their projections. Most assume an 8% rate of return. But if the going rate is an avg. yield of only 4%, they will need to invest DOUBLE the amount of money in stocks or bonds. That is, if the pension funds have any money to invest at all. The Point is, The Quest for Yield continues, and WILL continue even after all the bonds are bought. Rates can go low, and STAY low, for an extended period of time, where did I hear that before? And when the yield% gets too low, then the focus will shift to "total return", and a stock which is contracting its float will be far more lucrative than a stock who is issuing 100% more shares over the same time period (example: Bank of America).