Starbucks vs. Nike: Which Stock's Dividend Dominates?

Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking -- dividend payments have made up about 40% of the market's average annual return from 1936 to the present day.

But few of us can invest in every single dividend-paying stock on the market, and even if we could, we're likely to find better gains by being selective. Today, two of America's most recognizable aspirational retail brands will square off in a head-to-head battle to determine which offers a better dividend for your portfolio.

Tale of the tape
Starbucks
(NASDAQ: SBUX  ) is the world's largest specialty coffee retailer. Founded in 1971 and headquartered in Seattle, the company's aggressively expanded from a single store in Seattle's Pike Place Market to more than 18,000 stores across 60 countries, which are operated by licensees, franchisees, or Starbucks itself. The company underwent a major restructuring in the late 2000s, when it shuttered more than 300 domestic stores while simultaneously launching 900 new stores outside the United States. The company has also formed a strategic alliance with Tata Coffee, Asia's largest coffee producer, to bring Starbucks to India, the world's second-most populous country.

Founded in 1964, Nike (NYSE: NKE  ) , formerly Blue Ribbon Sports, is the world's largest supplier of shoes and apparel, and is also a leading manufacturer of sportswear and equipment. The company markets branded products through a combination of more than 800 branded retail stores, subsidiaries, other retailers, distributors and licensees across the world. The company recently launched a new product range called Nike Free, which has become a popular choice for athletic footwear consumers, and also has a range of digital fitness trackers headlined by Nike+, which can interface with users' computers and smartphones to enhance exercise experiences.

Statistic

Starbucks

Nike

Market cap

$57.6 billion

$68.4 billion

P/E ratio

10,000

26.4

Trailing 12-month profit margin

0.1%

10.5%

TTM free cash flow margin*

11.8%

9.1%

Five-year total return 

801.2%

239.5%

Source: Morningstar and YCharts.
*Free cash flow margin is free cash flow divided by revenue for the trailing 12 months.

Round one: endurance (dividend-paying streak)
According to Dividata, Starbucks began paying dividends each quarter in 2010, for a 4-year long dividend-paying streak. That makes this an easy win for Nike , which has made regular payments to shareholders for more than 25 years since it first initiated dividends in 1987.

Winner: Nike, 1-0.

Round two: stability (dividend-raising streak)
Starbucks has increased its dividend payouts at least once every year since it began paying dividends in 2010. However, Nike has been raising its dividend at least once per year since 2003, according to Dividata. A solid decade of dividend-raising lets Nike win the stability crown without any hassles.

Winner: Nike, 2-0.

Round three: power (dividend yield)
Some dividends are enticing, but others are merely tokens that barely affect an investor's decision. Have our two companies sustained strong yields over time? Let's take a look:

SBUX Dividend Yield (TTM) Chart

SBUX Dividend Yield (TTM) data by YCharts

Winner: Nike, 3-0.

Round four: strength (recent dividend growth)
A stock's yield can stay high without much effort if its share price doesn't budge, so let's look at the growth in payouts over the past five years.

SBUX Dividend Chart

SBUX Dividend data by YCharts

Winner: Starbucks, 1-3.

Round five: flexibility (free cash flow payout ratio)
A company that pays out too much of its free cash flow in dividends could be at risk of a cutback, particularly if business weakens. We want to see sustainable payouts, so lower is better:

SBUX Cash Dividend Payout Ratio (TTM) Chart

SBUX Cash Dividend Payout Ratio (TTM) data by YCharts

Winner: Nike, 4-1.

Bonus round: opportunities and threats
Nike may have won the best-of-five on the basis of its history, but investors should never base their decisions on past performance alone. Tomorrow might bring a far different business environment, so it's important to also examine each company's potential, whether it happens to be nearly boundless or constrained too tightly for growth.

Starbucks opportunities

Nike opportunities

Starbucks threats

Nike threats

One dividend to rule them all
In this writer's humble opinion, it seems that Nike has a better shot at long-term outperformance, thanks to its commitment to innovative products, its ubiquitous brand recognition, and its unrivalled merchandising strategies. The company's Fuelband line also offers the chance to build a new moat among tech-savvy fitness fans, although this is sure to be a highly competitive arena. Starbucks, on the other hand, could benefit greatly from an expanded presence in the emerging markets, but it may face fierce competition from other specialty coffee outlets. You might disagree, and if so, you're encouraged to share your viewpoint in the comments below. No dividend is completely perfect, but some are bound to produce better results than others. Keep your eyes open -- you never know where you might find the next great dividend stock!

Looking for more great dividend stocks?
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.


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  • Report this Comment On December 16, 2013, at 11:46 AM, VickieGoGood wrote:

    own both. I'll see which one jumps the gate.

  • Report this Comment On December 16, 2013, at 1:29 PM, phoenixseangels wrote:

    i've read a lot about tea being the next huge market for starbucks and was surprised that wasn't listed on the opportunities side of the ledger. two great companies to hold long term.

  • Report this Comment On December 16, 2013, at 2:46 PM, gr8twhtebuffalo wrote:

    I started buying individual stocks back in September of this year and Nike was one that I purchased. I can sleep at night owning Nike. Earnings report is on Thursday....I'm hoping for good news.

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