1 Unstoppable Dividend Stock to Build Generational Wealth

Money doesn't grow on trees, but dividends might be the next best thing. Since 1900, these cash payouts have fueled the bulk of U.S. stock market gains. The magic lies in compounding-reinvested dividends snowball over time, potentially turning modest investments into fortunes.

Even so, not all dividend stocks are capable of delivering market-beating results. The real wealth-builders maintain their edge for decades, weathering economic storms and technological shifts.

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Which dividend payer has the staying power to potentially enrich your family for generations? Let's explore a retail giant that's been crushing the benchmark S&P 500 since the 1980s.

Warehouse wonder

Costco Wholesale Corporation (NASDAQ: COST) burst onto the scene in 1985, offering a simple promise: unbeatable prices on quality goods. That formula has paid off handsomely for long-term investors.

A $10,000 stake at Costco's IPO, with dividends plowed back in, would have ballooned to a jaw-dropping $15 million today. That's an incredible return on investment no matter how you slice it.

COST data by YCharts

Costco's dividend growth tells a compelling story. Since initiating payouts in 2004, the company has averaged a 13% annual increase. That's not counting special dividends, which have provided additional windfalls to shareholders.

The secret sauce

What fuels Costco's dividend-paying prowess? The answer lies in its bustling warehouse aisles. Shoppers flock to Costco for deals that help stretch their budgets in inflationary times. As long as the U.S. government maintains its penchant for deficit spending, Costco's value proposition should remain rock-solid.

Costco's stock trades at a lofty 53 times trailing earnings. Skeptics might balk at this nosebleed valuation, but consider this: the company could potentially double its store count and still grapple with overcrowding issues. That's a good problem to have in retail.

Recent results paint a picture of strength. U.S. comparable sales grew 6.3% on an adjusted basis in the latest quarter, outpacing rival Sam's Club. A 5.6% uptick in traffic drove this growth. Internationally, Costco's brand resonates even more strongly, with high single-digit comparable sales increases during the three-month period.

Building a moat

Costco's success stems from its laser focus on efficiency. The no-frills warehouse format, limited product selection, and streamlined inventory management keep costs low. This translates to selling, general, and administrative expenses of just 9% to 10% of sales, compared to roughly 20% for competitors like Walmart and Target.

The savings flow back to customers through rock-bottom prices, cementing loyalty. Costco boasts 74 million global members with a stellar 90% renewal rate (93% in the U.S. and Canada). This steady stream of membership fees provides a cushion against economic ups and downs.

While e-commerce has upended many retailers, Costco stands firm. About two-thirds of its core sales come from food and groceries-items less vulnerable to online competition due to shipping challenges. Moreover, the treasure-hunt aspect of Costco shopping, with ever-changing deals on everything from jewelry to tires, keeps customers coming back.

A foundation for the future

Costco's blend of loyal customers, operational efficiency, and room for expansion makes it a compelling choice for dividend-focused investors. While past performance doesn't guarantee future results, Costco's track record suggests it could continue rewarding shareholders for decades to come.

In a world of constant change, Costco's enduring appeal offers a rare sense of stability. For those seeking to build multigenerational wealth through dividends, this retail giant might just be the cornerstone your portfolio needs.

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George Budwell has positions in Costco Wholesale, Target, and Walmart. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.