Valued at a market cap of $443 billion, Costco is among the largest retailers in the world. The blue-chip stock has returned close to 600% to shareholders over the past decade, comfortably beating the broader markets. 

While Costco (COST) generates a significant portion of sales from product sales, its net income is largely tied to membership fees. In fact, the membership fee is also the engine that quietly powers the company’s dividend growth. 

Costco’s multi-billion-dollar business

Costco generated $5.3 billion in membership fees last fiscal year (ended in August), according to data from Fiscal.ai.

That sounds modest compared to $275 billion in total sales. But net income, what the company actually kept after all its costs, was $8.3 billion.

Do the math. Membership fees accounted for roughly 64% of Costco’s profits.

That’s a remarkable stat. Costco runs its retail business on razor-thin margins by design. The goal is to pass savings along to members. The membership fee is where the real money is made.

And members keep coming back. In Q1 fiscal 2026, covering the 12 weeks ended Nov. 23, membership fee incomeclimbed to $1.329 billion, up 14% from the same period a year ago. 

Costco CFO Gary Millerchip said last September’s fee increase in the U.S. and Canada accounted for just under half of that growth. The rest came from a bigger member base and more people upgrading to Executive Membership.

Does it feel unfair to pay money for permission to shop at a store? Costco members don’t think so. They tend to be extremely loyal and keep coming back.

Costco’s member numbers were up last year.

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Costco’s membership growth continues to accelerate 

Costco ended Q1 fiscal 2026 with 81.4 million total paid members, a 5.2% increase year over year, according to Zacks Equity Research.

Executive Memberships, which cost more but offer 2% cash back on most purchases, grew even faster, at 9.1%, reaching 39.7 million members.

More Executive Members means more fee income per household. It’s a simple but powerful dynamic.

One thing Millerchip flagged on the Q1 earnings call: Renewal rates dipped slightly. The U.S. and Canada renewal rate came in at 92.2%, down 0.1% from the prior quarter. Worldwide, it stood at 89.7%.

More members are signing up digitally, and that group, typically younger shoppers, renews at a slightly lower rate than those who sign up in-store. 

Costco is working to close that gap with targeted outreach to members approaching renewal. Early results have been encouraging, with the decline coming in smaller than expected.

How membership income connects to Costco dividends

Costco has paid a regular quarterly dividend for years, and the company has a history of issuing special dividends when cash builds up. That consistency is built on the predictability of membership income.

Unlike retail sales, which swing with consumer spending, tariffs, or supply chain disruptions, membership fees are collected upfront and renewed annually.

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That makes them one of the most reliable revenue streams in all of retail.

  • Wall Street projects Costco to expand its free cash flow from $7.8 billion in 2025 to $12.25 billion in 2030. 
  • Given an annual dividend expense of $2.2 billion, Costco’s payout ratio is well covered at 28%. 
  • Analysts also forecast Costco’s annual dividend to increase from $4.92 per share in fiscal 2025 to $7.88 per share in fiscal 2030. 

Key dividend metrics for Costco stock:

  • Annual dividend: $5.20 per share (regular quarterly dividend)
  • Dividend yield: Approximately 0.5%, based on recent share price
  • 10-year dividend growth rate: Approximately 12% annually
  • Payout ratio: Approximately 28% of FCF (leaving significant room for growth)

The low payout ratio is the key detail for dividend investors.

Costco keeps plenty of earnings in reserve, which gives it the flexibility to raise the regular dividend, issue special dividends, or fund warehouse expansion, all at the same time.

Is Costco a top dividend stock to own?

Costco ended Q1 with 921 warehouses worldwide and plans to open 28 net new locations in fiscal 2026. 

The big-box retailer also disclosed that fiscal 2025 warehouse openings are now generating an annualized $192 million in sales per location in their opening year, up from $150 million just two years ago.

More warehouses mean more members. More members mean more fee income. More fee income means a stronger foundation for the dividend.

It’s a flywheel that has worked for decades. And as Costco pushes deeper into digital, AI-powered inventory management, and personalization tools, the model looks only to get more efficient.

For dividend investors, the story here is straightforward.

Costco isn’t just a retailer. It’s a membership business that also sells a lot of chicken, tires, and gold jewelry on the side.

Related: How Costco keeps prices so low for members