24/7 Wall St. Insights

• Starbucks Corp. (NASDAQ: SBUX) just rewarded its shareholders with a quarterly dividend hike.
• Its dividend has grown significantly over the past decade.
• Also: 2 Dividend Legends to Hold Forever.

Starbucks Corp. (NASDAQ: SBUX) is rewarding its shareholders once again, this time with a quarterly dividend of $0.61, payable on Friday, Nov. 29. That is a 7% increase from the prior payouts. The company has a new CEO who is tasked with revamping and refreshing the company’s flagging image. The continuing dividend underscores the management’s commitment to delivering consistent value to investors.

Why Investors Like Dividends

Investors favor dividend stocks for two main reasons. The first is that they offer enticing total return potential. Total return is a comprehensive measure of investment performance that includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. It is one of the most effective ways to boost the prospects of overall investing success.

Dividend stocks can also provide investors with a steady, reliable stream of passive income. Passive income is money that is earned with little to no ongoing effort, usually from assets that generate cash flow. This income can come from a variety of sources, including stock dividends. Generating passive income is a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.

Starbucks Dividend

Starbucks has hiked its dividend every year since 2010, when the payout was $0.05 per share (split-adjusted). That is a total gain of about 1,120% since then. The current dividend yield is 2.4%, which is about the same as the average yield of its sector but higher than the industry average.

Note that the share price has grown by around 542% in that time as well, offering investors plenty of growth along with the income.

Starbucks, the Company

The company operates as a roaster, marketer, and retailer of coffee worldwide. Its stores offer coffee and tea beverages, roasted whole beans and ground coffees, single-serve products, and ready-to-drink beverages. It also offers various food products, such as pastries, breakfast sandwiches, and lunch items. Starbucks licenses its trademarks through licensed stores and grocery and foodservice accounts. It provides products under the Starbucks Coffee, Teavana, Seattle’s Best Coffee, Ethos, Starbucks Reserve, and Princi brands.

Its headquarters are in Seattle. The company was founded in 1971 as a coffee bean retailer. It went public in June of 1992. It competes with or is similar to Dunkin Brands, Dutch Bros Inc. (NYSE: BROS), McDonald’s Corp. (NYSE: MCD), and others.

After years of overexpansion and underperformance, the new boss has promised to simplify the company’s “overly complex menu” and review its pricing. The company also has something of a reputation for resistance to unionization, and yet workers at hundreds of its stores have voted to unionize. More recently, the company is rumored to be looking to sell a stake in its business in China.

Starbucks, the Stock

The share price has grown just 22% or so in the past five years, far underperforming the S&P 500. Year to date, the stock is up over 5%, while the S&P 500 is almost 25% higher. The consensus price target is $102.80, which signals about 3% upside in the coming year. Of 35 analysts who cover the stock, 18 recommend buying shares, seven of them with Strong Buy ratings. RBC Capital and TD Cowen recently reiterated Buy-equivalent ratings.

Institutional investors hold more than 82% of the shares. Blackrock, State Street, and Vanguard have notable stakes. Note that over 25 million shares, or more than 2% of the float, are held short. The company’s chief financial officer sold some shares recently.

A 400% Dividend Hike: Here’s How Much Investors Just Got

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