Wal-Mart Stores, Inc. (WMT), Costco Wholesale Corporation (COST): This Discount Giant Is Too Expensive, But There Are Better Alternatives

Additionally, Wal-Mart Stores, Inc. (NYSE:WMT) seems to be a much more shareholder-friendly company in terms of both dividends and buybacks. The current dividend yield is 2.53% and this has been raised consistently since the company began paying dividends in 1973. Additionally, Wal-Mart Stores, Inc. (NYSE:WMT) has a great buyback program, and in the past five years, the amount of outstanding shares has been reduced by 15.3%, compared to just a 1.8% reduction for Costco over that same time period.

Another alternative, especially if you believe the economic recovery will continue for several years, is Target Corporation (NYSE:TGT), which is a slightly more upscale giant discount chain. Target may actually be the fastest-growing of the three companies mentioned here, with an aggressive expansion plan into Canada underway right now. In fact, in 2013 alone, over 125 new Target stores are expected to open in Canada alone.

Target trades for 15.1 times earnings, which seems like an absolute bargain when you consider that a forward growth rate of over 15% is projected for the foreseeable future. Target pays a dividend of just over 2%, making this a true growth/income play, and my current favorite of the three.

Final Thoughts about Costco

While I love Costco as a company, and shop there frequently, there are simply better options right now for both growth and income investors. One interesting thing I’d like to share that I found when researching Costco Wholesale Corporation (NASDAQ:COST), however, could turn the tables very quickly.

Those who have been following political news recently knows that President Obama has called for raising the federal minimum wage to $10.10 per hour, which you may think would be bad for all retailers of this nature. What I didn’t realize was that Costco’s average sales associate makes $11.56 per hour, more than $2 per hour more than Wal-Mart Stores, Inc. (NYSE:WMT) or Target. So, the minimum wage hike wouldn’t really affect Costco Wholesale Corporation (NASDAQ:COST) much, if it happens, and it could be a game-changer for the profitability of the other two companies.

The article This Discount Giant Is Too Expensive, But There Are Better Alternatives originally appeared on Fool.com and is written by Matthew Frankel.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.