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Is Starbucks a Great Dividend Stock?

By Anders Bylund – Jun 2, 2020 at 9:29AM

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Many companies have paused their dividend payouts because of the COVID-19 crisis, but the coffee titan wants to be a rock of certainty in uncertain times.

Coffee shop giant Starbucks (SBUX -2.67%) raised its dividend payouts by 14% six months ago. The dividend yield peaked at 2.7% in the darkest part of the COVID-19 health crisis but fell back to 2% as Starbucks' stock recovered.

Many companies have paused or even canceled their dividend policies in order to conserve cash during the coronavirus pandemic. Starbucks has not made that move yet, and management has told investors that the dividend will stay intact.

Cost cutting

On Starbucks' second-quarter earnings call near the end of April, CFO Patrick Grismer explained the cash-saving steps his company is taking.

"In addition to accessing additional capital to bridge near-term cash needs, which we expect to peak in Q3, we are creating additional room for investment in our partners and the business more broadly by suspending share repurchases, reducing discretionary expenses and deferring certain capital expenditures," Grismer said.

So the company isn't buying back shares right now. Starbucks spent $4.1 billion on net share buybacks over the last four quarters, so that move carries some substantial weight. The decision to delay some capital expenses will make a smaller difference since that line item added up to $1.7 billion over the same time period. These cost savings are more than enough to keep the dividend policy going at full speed; Starbucks' annual dividend budget stops at $1.8 billion today.

Close-up photo of a hand stacking gold coins in increasingly tall piles.

Image source: Getty Images.

These payouts will keep coming

Grismer also explained why Starbucks is bending over backwards to protect the dividend policy in this time of economic crisis. This thought process has a shareholder-friendly ring to it.

"One of the things that we're proud of is that we're able to maintain our commitment to shareholders to provide some measure of certain return in an uncertain investment environment," he said. "So our intention today is to continue to pay our quarterly dividend."

Dividend growth

Starbucks sent out its first dividend payments in the spring of 2010. The payouts have grown eightfold in ten years while share prices multiplied by seven:

SBUX Chart

SBUX data by YCharts

The company is committed to annual dividend boosts even in these difficult times, and Starbucks has plenty of headroom to keep growing these payouts with the full backing of torrential cash flows. In short, Starbucks has everything a dividend investor might want, and the stock would look good in your income-oriented portfolio.

Anders Bylund 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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