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Why Starbucks Will Keep Raising Its Dividend

By Tom Gardner – Apr 11, 2013 at 8:00PM

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Part of The Motley Fool's chat with Starbucks CFO Troy Alstead.

In the video below, Motley Fool CEO Tom Gardner sits down with Starbucks (SBUX 0.04%) CFO Troy Alstead during a recent visit to Starbucks headquarters in Seattle. In this portion of the video, they discuss whether Starbucks would be open to taking on more debt considering the low-interest-rate environment. Alstead says that the company is focused on using its cash flow to continue to raise its dividend, with a payout ratio of 35% to 40%. Alstead says he is committed to elevating that payout ratio, and that the company has considered taking on balance sheet debt in the future. 

A full transcript follows the video.

Starbucks is one of Tom Gardner's favorite stocks, but you can never have too many great companies in your portfolio. If you're looking for more ideas, our chief investment officer has selected a different stock as his favorite for this year. Find out which stock it is in the free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company. 

Tom Gardner: Why not, in this low-interest-rate environment, with your pristine balance sheet, more aggressively use leverage to expand more rapidly?

Troy Alstead: The answer to that is we might. We look closely at that. We haven't needed funding. We have such a strength of cash flow in our business that we have committed to our dividend and committed to raising our dividend year after year, which we've been doing. We initiated that dividend at a 35[%] to 40% payout ratio a couple of years ago. I am committed over time, not immediately, but when we can, to elevating that ratio, to really growing that dividend as a way to return cash. We're active in share repurchases. We believe that's valuable to shareholders as one way to provide that distribution back. 

And we're also heavily focused on: What's the right balance sheet? Should we optimize it? So we are always looking at bringing some balance sheet debt on; at some point in time we may well do that. 

Tom Gardner owns shares of Starbucks. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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