DGI Adventure – 11-27-2015 Payday! – Costco Wholesale Corporation (COST)

I got paid today. I own 13.9623 shares of COST, and at
$0.40/share the most recent dividend showed up as $5.58 in my brokerage
account. Woo hoo!

This is my second payday this week, and the first
was a double dipper, so I had three stocks pay me a dividend in one
week. Triple Woo hoo!

COST is a funny investment for me. I wouldn’t buy the stock
today. I bought the bulk of my position in March of 2014, and had I been
following the same investment
thesis process
then as I do now, I probably wouldn’t have bought it then
either. But it is by far my most successful investment in both conventional
measures and my own measures.

In terms of conventional measures: The current market value
is 44% higher than my cost basis, which blows the S&P500 out of the water
in the same time frame. COST closed at $163.58/share in today’s shortened
trading session. I’ve made an imaginary $696.30!!!

In terms of my own measures: My current invested yield is
1.41% compared to a 0.98% market yield. I’ve received a total of $96.47 in cash
money dividends since I stopped automatically reinvesting. That’s nearly 6% of
my invested principal (most of that is due to a special $5/share dividend that
was paid earlier this year…)

I chalk this investment’s success up to mostly dumb luck. I had
no idea what I was doing back in March of 2014. I bought COST on someone else’s
recommendation that it was a good stock, and I verified that recommendation
with the intensive due diligence of, “well shit…I shop a lot at Costco! It
probably is a good stock.”

Okay, there was a little more to it than that. I knew that
Costco is everywhere. I knew that they had a very strong history of growth. I
knew that they pay their employees a very high wage compared to the retail
industry and enjoy a low turnover rate as a result. 

But I didn’t know what a
payout ratio even was; much less that Costco’s was ~29% at the time. Did I know
that they’d raised their dividend 11 years in a row at an average DGR of ~17%?
Nope. Did I know what the 5-year average yield was compared to the 1.3% I got
at the time? Sure didn’t. Still don’t ‘cause I’m not going to go back and try
to calculate it. I probably knew that they had over $1B in cash. That’s been a
guidepost for me for a while. But I essentially knew nothing about the
financial health of the company or the strength of the dividend.

So my best investment to date was basically a lucky guess.

Does that mean I should sell it? I don’t think so, although
it is probably pretty overvalued right now. Should I change my process? I’m not
ready to do that either. Hoping to get lucky isn’t much of a strategy.

But I do ask myself what it all means. I don’t really know
what it all means, but I do know it feels good to be lucky. I’d like to think
that a year from now I will be able to write about a stock I purchased because of
my process and point to a similar type of success. There will still be an element
of luck involved, but hopefully it won’t look like as much of a shot in the
dark as this one.

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