Hidden within a great earnings report from Starbucks (SBUX -0.35%) last week was news that the company was raising its dividend. While seemingly less headline-worthy than Starbucks' large revenue and earnings-per-share beats, the company's dividend increase should not be overlooked as it follows in a long line of aggressive dividend hikes by management in recent years.
The consistent rate at which the company has increased its dividend should force investors to think of Starbucks not only as a large-cap growth stock, but also as a formidable dividend stock.
Dividend growth
Dividend growth is a really valuable instrument for every investor that takes advantage of it. By reinvesting all dividends in a company that is committed to growing its payout over time, investors can amass impressive returns in the long term as the dividends are compounded.
Finding a company that can achieve robust and sustainable dividend growth is hard. Finding one that can achieve revenue and earnings growth in addition to aggressive dividend growth is even harder. However, Starbucks is on the verge of doing just that.
The Starbucks dividend
In my experience, to find a company capable of doing both, it is best to start with those that have only just started to pay dividends. These companies are more likely to still be in a revenue/EPS growth phase. Next, it is important to analyze how often the company raises its dividend, as well as the growth rate of that dividend.
Starbucks started paying a dividend in 2010, and since then the company has raised its dividend four times. As a general rule of thumb, any company successfully raising its dividend every year is showing the kind of consistency that dividend-growth investors need to see.
Starbucks' dividend was $0.10 in 2010. It was raised to $0.13 later in the year, which represents an increase of 30%. In 2011, Starbucks raised its dividend again to $0.17, an increase of 30.8%. A year later, Starbucks increased its dividend to $0.21, an increase of 23.5%. Finally, management announced last week that it was raising the company's dividend to $0.26, which represents an increase of 23.8%.
The average growth rate of Starbucks' dividend works out to be 27%. Considering Starbucks has managed a dividend raise in each of the last four years, investors can expect to receive more dividend increases of more than 20% from the company approximately each year.
Starbucks' growth
Of course, the dividend is only part of the Starbucks success story. The rest is centered around robust revenue and earnings-per-share growth.
Starbucks, despite being a large and relatively mature company, still manages growth that leads most of its direct peers. The following is a breakdown of the company's projected revenue and earnings per share for 2013-2014 compared to much smaller competitors Dunkin' Brands Group (DNKN) and Green Mountain Coffee Roasters (GMCR.DL).
|
Company |
Dunkin' |
Green Mountain |
Starbucks |
|---|---|---|---|
|
Projected 2013 revenue growth |
7.9% |
10.8% |
12.2% |
|
Projected 2014 revenue growth |
7.1% |
9.4% |
11.2% |
|
Projected 2013 EPS growth |
18% |
35.4% |
17.7% |
|
Projected 2014 EPS growth |
19.2% |
16.3% |
19.5% |
As the data aboveindicates, Starbucks leads all listed competitors in every category except for one -- 2013 EPS growth. This industry-leading growth is in spite of the fact that Starbucks' market capitalization of $60.4 billion is more than 10 times the market cap of Dunkin' Brands Group and more than six times that of Green Mountain Coffee Roasters.
This indicates that management at Starbucks is not content to simply rest on its laurels, as the company's large size has yet to significantly hamper its growth.
Final Foolish thoughts
Starbucks' large market capitalization belies the company's industry-leading growth prospects. The company is still growing rapidly across the globe as it expands its product lineup away from just coffee to include teas, sodas, and pastries. As such, the majority of long-term growth investors should consider the stock.
However, Starbucks is rare in that it offers investors robust dividend growth as well. While the company is still in the early phases of dividend growth, the results thus far indicate that management is dedicated to raising the dividend substantially and at consistent intervals. Accordingly, investors with a need for reliable and above-average dividend increases should begin to consider Starbucks as well.
