Dividend Resilience in a Downturn: Why Defensive Retailers Like Costco Are Outperforming

In an era of economic uncertainty, where inflation, labor market fragility, and geopolitical tensions fuel market volatility, contrarian value investors are increasingly turning to defensive stocks. Among these, retailers like Costco Wholesale Corporation (COST) stand out for their ability to maintain profitability and dividend payouts even during downturns. While many companies have slashed dividends or seen sharp stock declines in past crises, Costco's financial resilience offers a compelling case for long-term investors seeking stability.

A Track Record of Dividend Resilience

Costco has demonstrated an unwavering commitment to shareholder returns, even in the face of economic headwinds. From 2020 to 2025, the company increased its dividend for 22 consecutive years, with the most recent hike raising the quarterly payout to $1.30 per share-a 12% increase from the prior year, according to Costco's fiscal 2025 results. This consistency is underpinned by a disciplined payout ratio of 29.5%, ensuring sustainability even during periods of reduced earnings, as detailed in the same report. During the 2020 pandemic, when many retailers shuttered locations and slashed budgets, Costco not only maintained its dividend but also issued a special $10-per-share payout in December 2020, as a CNBC report noted.

A backtest of dividend announcements from 2022 to 2025 reveals that while the initial market reaction was often flat or slightly negative, the average excess return over a 30-day period was approximately +2% compared to the S&P 500, indicating a modest long-term benefit to the strategy, according to the company report.

This pattern of resilience dates back to the 2008 financial crisis. While the S&P 500 plummeted by 57% during the crisis, according to TheInvestQuest, Costco reported $1.28 billion in net income for fiscal 2008-a 19% increase from the prior year, per Costco's fiscal 2008 results. The company's membership model, which prioritizes high-volume sales and cost efficiency, allowed it to weather the downturn without compromising its dividend trajectory.

Contrasting the Competition

Costco's dividend discipline starkly contrasts with the struggles of its peers. During the 2008 crisis, financial giants like General Electric (GE) made the largest dividend cut in S&P 500 history, reducing payouts by $8.9 billion to preserve liquidity, as DividendInvestors documents. In 2020, the pandemic triggered a wave of dividend suspensions across retail and consumer discretionary sectors. Companies such as Brinker International (EAT), Gannett Co. (GCI), and Dave & Buster's (PLAY) eliminated dividends entirely to conserve cash amid declining sales. By comparison, Costco's ability to raise dividends during the same period underscored its structural advantages, including a loyal membership base and a business model that thrives on essential spending.

Stock Performance: A Defensive Edge

Costco's stock has historically outperformed broader markets during downturns. During the 2020-2021 pandemic, its shares surged 174% over five years, far outpacing the S&P 500's 86% gain, according to Motley Fool. This outperformance was driven by a shift in consumer behavior toward value-oriented shopping, with Costco's membership model enabling it to capitalize on demand for bulk essentials. Even in 2025, when broader market volatility led to a 5.94% decline in Costco's stock during the second quarter, the company's fundamentals-bolstered by 14% growth in membership fees and 13.5% e-commerce sales growth-remained robust, as Reuters reported.

The Case for Contrarian Value Investing

For value investors, Costco represents a rare combination of defensive characteristics and long-term growth potential. Its low payout ratio (29.5%) leaves room for future increases, while its 0.55% dividend yield, though modest, reflects confidence in sustainable earnings. In contrast, companies that cut dividends during past crises-such as Rite Aid, whose stock fell from $950 in 1999 to $2.12 in 2023-serve as cautionary tales of financial fragility.

Costco's resilience is rooted in its business model: high barriers to entry, a global supply chain optimized for cost efficiency, and a customer base that prioritizes value. As inflation and recessionary risks persist, these attributes position Costco to outperform both cyclical peers and the broader market.

Conclusion

In a volatile market, defensive retailers like Costco offer a refuge for contrarian investors. By maintaining dividend payouts during downturns and leveraging structural advantages, the company has proven its ability to generate consistent returns. As history shows, businesses that prioritize financial discipline and shareholder value-especially during crises-are often the ones that outperform in the long run. For investors seeking resilience, Costco's track record is a testament to the power of a defensive, value-oriented approach.