Forget Costco Wholesale Corporation: Here Are 3 Better Dividend Stocks

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Costco Wholesale(NASDAQ: COST) has rewarded investors handsomely in recent years. Not only has the stock outperformed the S&P 500 over the last five- and 10-year periods, but the company has paid out a steadily increasing dividend and on two occasions during the past five years has paid sizable special dividends, including one of $7 per share in 2012 and $5 in 2015. By comparison, Costco's quarterly dividend today is just $0.45, so each of those special dividends are equivalent to several years worth of payouts.

While it's hard to argue with that track record, Costco's future may not be as bright as its past. Competition has increased'sPrime membership program and a resurgentWal-Mart, and Costco's comparable sales growth has slowed and earnings have even fallen in recent quarters. Through the first three quarters of this year EPS has fallen from $3.64 to $3.56 as the company has been squeezed by lower gas prices and a stronger dollar, and revenue has increased by just 2%.

With a dividend yield of just 1.1%, investors can certainly find better payouts elsewhere, and its P/E ratio of 30 makes it seem overvalued for a company struggling to deliver earnings growth. Let's take a look at some more promising dividend stocks.

1. Starbucks

At first glance, Starbucks(NASDAQ: SBUX)may have a similar dividend profile to Costco with a dividend yield of 1.4% and a P/E ratio of 31, but the coffee giant has been aggressively raising its dividend since it first paid one in 2010. In fact, in no year since then has Starbucks raised its dividend by less than 23%, and the company should raise it again in October when it reports fourth-quarter earnings. By comparison, Costco has been raising its dividend by about 12% a year, a respectable clip but not enough to match Starbucks.

Starbucks has been able to support such dividend increases because its profits have been growing just as fast. Since 2010, its EPS and quarterly dividends have both tripled, meaning the company has funded those increases with increased profits, rather than cash on hand or debt. Unlike Costco, Starbucks doesn't have any rising competitive threats to tackle. Having bested rivals likeDunkin' Brandsand McDonald's, the coffee chain's growth path looks clear. Comparable sales remain solid and it plans to add nearly 2,000 new stores this year as well 500 a year in China each year for the next five years. With that kind of expansion, its dividend payout should keep chugging higher.

2. Home Depot

Costco isn't the only retailer that's bucked the wider trend plaguing the industry in recent years. Home Depot(NYSE: HD), riding the housing recovery, has been one of the top performers in the market in recent years as its stock has quadrupled over the last five years, and its dividend payout has surged. Since 2011, each dividend hike it made has lifted the payout by 16% or more, as it's gone from $0.25 to $0.69.

The home improvement retailer's stock now offers a 2% dividend yield at a P/E ratio of 23, making it cheaper and a higher yield than Costco, and, like Starbucks, much of the recent dividend growth has come out of earnings. Over the last five years, Home Depot's dividend has increased 176% while EPS is up 155%.

With a payout ratio of just 43%, the company has a cushion to continue raising dividends even if earnings growth slows. Management has been amenable to returning capital to shareholders as the company has resisted opening new stores and instead reinvested that income into dividends and share buybacks as well as existing stores and its e-commerce platform. As a result, comparable sales have consistently grown in the mid-single digits or higher, and the company expects to reach revenue of $101 billion and an operating margin of 14.5% by 2018, representing a 27% increase in operating profit over 2015. If it can deliver on that goal, the divided payment should continue to move steadily upward.

3. Apple

Apple(NASDAQ: AAPL) is a different kind of company than the others on this list and the iPhone-maker is not without its near-term challenges as device sales have slipped. However, for a dividend investors, Apple looks like a great choice.

After announcing it would reinitiate its dividend in 2012, the company has lifted it modestly each year, by 8% or more, and now offers a 2.1% yield. While that may not sound so appealing, the company's low valuation (a P/E of just 12), and huge profits mean it can afford to raise dividends significantly without additional profits as the payout ratio is just 25%.

The company's significant spending on share buybacks, having reduced shares outstanding by about 20% since 2013, also makes it easier to raise dividends as there are fewer shares that require them.

Despite Apple's current challenges, it has virtually unmatched brand power, dominance of the smartphone market, a fast-growing, high-margin cash flow from its services, and a pipeline of potentially groundbreaking products like an Apple car. The company doesn't need to return to growth immediately to keep lifting its dividend, but if it does, the payout could spike faster than you think.

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Jeremy Bowman owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Costco Wholesale, and Starbucks. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.