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A Close Look at Starbucks' Double-Digit Dividend Increase

By Daniel Sparks – Updated Nov 21, 2019 at 5:23PM

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This marks 10 years in a row that the coffee giant's dividend increased by a double-digit percentage.

In the summer of 2018, Starbucks (SBUX -1.72%) management said it was sharpening its focus on returning capital to shareholders. The coffee giant committed to buying back more shares and paying higher dividends. Starbucks has followed through on this plan, with its most recent move being another dividend increase.

Another double-digit dividend increase from Starbucks reinforces the stock's attractiveness as a dividend investment. Furthermore, it highlights management's continued prioritization of returning capital to shareholders.

A woman using Starbucks' mobile loyalty program

Image source: Starbucks.

Starbucks' 14% dividend increase

Alongside its fiscal fourth-quarter update on Oct. 10, Starbucks said it is increasing its quarterly dividend by 14% to $0.41. That puts total annual dividend payments at $1.64, translating to a forward dividend yield of 2%.

The new dividend is payable on Nov. 29 to shareholders of record as of Nov. 13.

Highlighting management's dividend-friendly capital allocation practices, this is the company's 10th consecutive year of double-digit percentage dividend increases.

It's worth noting that while the increase was notable, it does mark a deceleration from 20% dividend increases in both fiscal 2017 and fiscal 2018. 

The dividend hike comes during a period that Starbucks' has committed to returning $25 billion to shareholders during a three-year period that ends at the end of fiscal 2020. As of the end of its fourth quarter of fiscal 2019, Starbucks had already returned $21 billion to shareholders. At this rate, the coffee company may need to refresh its capital return program before its current capital program ends.

More growth ahead

Starbucks will probably continue increasing its dividend annually. The company is a healthy financial position to return excess capital to shareholders.

In fiscal 2019, Starbucks' revenue increased 7% year over year as comparable store sales rose 5%. Furthermore, non-GAAP (adjusted) earnings per share increased 17% year over year (10% when excluding a 7% benefit to earnings thanks to tax rate favorability) in fiscal 2019. 

It's also worth noting that Starbucks is currently only paying out about half of its net income in dividends, leaving plenty of room for dividend growth.

Looking ahead, fiscal 2020's financials will probably easily support the continuation of Starbucks' notable dividend track record. Management expects revenue to rise 6% to 8% year over year in fiscal 2020, helped by a 3% to 4% increase in comparable store sales. Management also expects its non-GAAP EPS to increase from $2.83 in fiscal 2019 to between $3.00 and $3.05 in fiscal 2020.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.

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