Last update on 2024-05-15

Starbucks (SBUX) - Dividend Analysis (Final Score: 6/8)

Learn about the dividend analysis for Starbucks (SBUX) and its evaluation based on 8 key criteria. Understand dividend yield, growth rate, payout ratios, coverage by earnings, cash flow assurance, dividend consistency, and stock repurchases.

Short Analysis

We're running Starbucks (SBUX) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis of Starbucks (SBUX) against the 8-criteria scoring system shows strengths and areas of caution for dividend investing. Starbucks’ dividend yield surpasses the industry average with a consistent upward trend in yield, indicating a strong return to shareholders. However, the Dividend Growth Rate analysis reveals a non-typical growth trajectory with initial high offerings reducing overtime, suggesting caution for those seeking consistent growth above 5%. The average payout ratio is misleadingly high due to outliers, but when normalized, shows a commitment to sustainable dividends, primarily falling within healthy ranges. Earnings and cash flow analysis further confirm the company's capability to cover dividend payments, though with some fluctuations that necessitate vigilant monitoring. The consistency and growth of dividends are commendable, establishing a positive trend since initiation in 2010, with no significant year-on-year drops. Despite not having a 25-year history of dividend payments, the consistent increase over 13 years depicts a solid foundation for dividends. Repurchase analysis indicates strategic buyback activities, with a nearly 29% reduction in outstanding shares over 20 years, underscoring financial health and support for shareholder value.

Insights for Investors Seeking Stable Dividend Income

Given the analysis, Starbucks appears to be an attractive investment for those seeking income through dividends, particularly due to its higher-than-average yield and the consistent, although relatively short, history of dividend payments and growth. The stock's dividend policy reflects a balance between growth and sustainability, underscored by a solid financial foundation and strategic buybacks. However, potential investors should approach with cautious optimism, factoring in the variability in growth rates and the coverage ratios that indicate the need for ongoing scrutiny. Investors prioritizing long-term growth alongside dividends might find SBUX appealing, provided they are comfortable with monitoring for any shifts in payout strategies or financial health indicators. Therefore, SBUX is worth considering for dividend investors, with the recommendation for ongoing monitoring to ensure continued alignment with investment goals.

Overview

Since its inception, Starbucks (SBUX) has implemented a strategic vision focused on building a formidable brand presence and customer loyalty in the global coffee market. The company's success can be attributed to a combination of factors, including its emphasis on providing a premium customer experience, continuous innovation, and a commitment to corporate social responsibility. Starbucks has strategically expanded its product offerings beyond coffee to include a range of beverages and food items, appealing to a wider customer base. Additionally, the company has leveraged technology to enhance customer convenience and drive sales through its popular mobile ordering and rewards app. Starbucks' strategic focus on sustainability and ethical sourcing practices has also resonated with consumers, further cementing its position as a leader in the industry. Overall, Starbucks' strategic initiatives have enabled the company to maintain its competitive edge and drive long-term value for shareholders.

Detailed Analysis

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Yield and Growth Rate Stability:

Dividend Yield Higher Than the Industry Average?

The Dividend Yield of a stock is a key indicator used by investors to understand the income generated by owning a share of the company in relation to its price. It provides a measure of the annual dividend payments to the shareholder, expressed as a percentage of the stock's current price. We will delve into this metric for Starbucks (SBUX) to determine how it compares to the industry average and what it indicates about the company's return to its investors.

With a current dividend yield of 2.2498%, Starbucks exceeds the industry average of 1.86%. This elevated yield indicates a higher return on investment for its shareholders compared to the broader industry. Over the last decade, the dividend yield of Starbucks has seen a significant upward trajectory, evolving from non-existent dividends in early years to consistently increasing rates reaching its current peak. This growth in dividend yield mirrors the company's increasing ability to generate cash flow and redistribute it amongst its shareholders effectively. Furthermore, despite fluctuations in the stock's closing price over the years, ranging from a low of $4.73 in 2008 to a high of $116.97 in 2021 with a recent close at $96.01, Starbucks has managed to steadily increase its dividend per share. From first initiating dividends in 2013 with $.445 per share to the latest recorded $.2160 per share in 2023. This indicates not just an increasing yield but also a commitment to delivering shareholder value through direct returns. Notably, such a trend of increasing dividends and a higher yield than the industry average is an attractive indicator for income-focused investors, suggesting Starbucks's robust financial health and growth prospects. This trend, especially in comparison to the rest of the industry, may make SBUX a more appealing investment for those looking for stable and potentially growing income streams alongside capital appreciation opportunities.

The Dividend annual Growth Rate is higher than 5% in the last 20 years?

Analyzing the Dividend Growth Rate over the last 20 years helps us assess the robustness of Starbucks' (SBUX) dividend policy over time, providing insight into how the company has managed to grow its dividends in relation to its per-share earnings. This is crucial for understanding the sustainability and potential increase in income for investors.

The Dividend Growth Rate for Starbucks (SBUX) cannot be traditionally calculated over the last 20 years due to an interesting pattern in the dividend per share ratio data. Notably, dividends were initiated in the fiscal year 2010, which is a significant milestone in Starbucks’ financial journey. From an initiation at 55.5556, we see fluctuations in the dividend ratio, notably decreasing in recent years to a low of 8 in 2023. The average dividend ratio over the observed periods where dividends were paid is approximately 13.38, which indicates a variable but overall declining trend in the dividend payout, as evidenced by the values from 55.5556 down to 8. This variance, with a starting high and a current decrease, suggests that while Starbucks began its dividend payments with a strong offer to attract or reward investors, economic pressures, company strategy, or earnings performance may have influenced a reduction in dividend ratios. Considering the dividends started in 2010, the applicable timeframe for growth measurement is about 13 years, and within this time, the growth aspect does not follow a typical positive trajectory when evaluating the decline from its initial dividend issue to the current payout. This trend might suggest caution for dividend growth investors, especially those seeking consistent annual growth above 5% over long periods. However, this analysis doesn't incorporate the possible adjustments for stock splits or extraordinary financial events which can significantly affect per-share calculations.

Payout Ratios Sustainability:

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is a crucial financial metric that indicates what portion of a company's income is distributed to shareholders in the form of dividends. It's calculated as a percentage of the company’s earnings. A lower average payout ratio, particularly one under 65% over a long period such as 20 years, is generally favorable for sustainable dividend policies. This criterion for Starbucks (SBUX) will help gauge the company's ability to maintain or increase dividends without compromising its financial health.

The reported average payout ratio for Starbucks over the last 20 years is 428.77%, which is significantly higher than the preferable threshold of 65%. This extremely high average is primarily skewed due to outliers like the payout ratios in 2013 and 2020, which are 8240.7407% and 212.3357% respectively. These anomalous values suggest that during these years, Starbucks might have paid out dividends that far exceeded its earnings, which is unsustainable in the long term. Excluding these outliers, the payout ratios range from 0% in the early years, reflecting no dividend payments, to a more standard range of 29.09% to 69.96% in the subsequent years. These numbers indicate a more realistic assessment of the company's dividend policy, trending towards moderate and sustainable payout ratios for most of the evaluated period. Despite the two anomalies, the general trend shows SBUX maintaining a payout ratio that would be considered healthy and indicative of a sustainable dividend policy. However, the exceptionally high average due to outliers highlights the importance of looking beyond average values to assess a company’s dividend health accurately. This trend, disregarding the anomalous years, can be seen as positive as it suggests Starbucks has managed its dividend payments responsibly, ensuring they align with earnings growth without endangering its financial stability. Therefore, it is crucial for investors to consider these outliers as exceptional cases and focus more on the company's typical payout ratios, which have largely remained within acceptable limits.

Coverage by Earnings and Cash Flow Assurance:

Dividends Well Covered by Earnings?

The coverage ratio is crucial for understanding how well a company's earnings can support its dividend payments. For Starbucks (SBUX), we're analyzing this ratio to evaluate the sufficiency of the earnings in covering dividends over the years. This ratio is fundamental because it indicates the financial health related to dividend sustainability -- a ratio above 1 implies earnings do not fully cover the dividends, potentially signaling issues with maintaining or increasing dividends in the future.

Reviewing the trend for Starbucks, the coverage ratio starts at 0 for several years, indicating there were no dividends issued during that period, and thus no concern regarding coverage. When dividends commence, the ratio oscillates significantly, revealing periods where earnings more adequately cover dividends (with ratios closer to 0 but below 1) and times when the coverage is under more strain (noted by ratios substantially above 0). Particularly, the year with an exceptionally high ratio suggests a period where earnings were barely sufficient to cover dividends, possibly due to unique financial challenges or a substantial dividend increase. However, towards the later years, the ratio stabilizes, albeit remaining under 1, indicating an improving but still cautious position concerning earnings' ability to cover dividends. This ongoing improvement is a positive sign, reflecting better financial management or growth in earnings relative to dividend payout increases. Nonetheless, investors should remain watchful for any future increases in this ratio as it could signify renewed pressure on dividend sustainability if earnings do not grow commensurately.

Dividends Well Covered by Cash Flow?

Criterion 3 focuses on whether dividends are well-covered by cash flow, which is essential for assessing the sustainability of a company's dividend payments. For Starbucks (SBUX), this criterion helps illuminate if the cash generated from operations is sufficient to cover its dividend payouts without straining finances.

Looking at the coverage ratio trend for Starbucks from 2003 to 2023, it's clear that the company didn't pay dividends until 2010, as indicated by the absence of any coverage ratio before this timeframe. Starting in 2010, when Starbucks began paying dividends, the coverage ratio initially reflects that the dividends were significantly covered by free cash flow, demonstrating a conservative approach towards dividends relative to the cash generated. However, in certain years, we observe fluctuations that merit attention. Particularly, the negative coverage in 2014 is due to an anomaly with the reported negative free cash flow. Moving past this, there's improvement with ratios indicating a healthy coverage of dividends by free cash flow, although with varying degrees of coverage. Notably, the exceptional spike in the coverage ratio in 2020 suggests extraordinary free cash flow or reduced dividends, which would typically signify a strong financial stance, but it's more likely reflective of major financial adjustments or operations during that period. After that notable spike, the coverage ratios normalize but show a downward trend towards the end of the observed period, indicating that while the dividends remain covered by free cash flow, the margin of coverage has decreased. This suggests Starbucks is maintaining its dividend payments possibly by managing its cash flow more aggressively or experiencing growth in dividend payments that is outpacing the growth of free cash flow. Such a scenario demands close monitoring to ensure that this trend does not signal potential stress on Starbucks' financial resources dedicated to sustaining dividend payouts. This analysis signifies that Starbucks has generally maintained a healthy practice of covering dividends with its cash flow but will need to carefully manage this balance moving forward to sustain or potentially increase dividend payments without financial strain.

Consistency and Longevity in Dividend Payments:

Stable Dividends Over the Past 20 Years?

Criterion 4 focuses on analyzing how stable a company's dividends have been over the past 20 years. A key measurement for income stability, it ensures that dividends per share have not fallen by more than 20% in any given year within this period. This is particularly relevant for income-seeking investors who prioritize reliable and consistent dividend incomes over time. We'll delve into this to understand Starbucks' (SBUX) dividend stability.

Looking at the provided dividend per share data for Starbucks over the past 20 years, it's evident that there has been a progressive increase in dividend payments from 2010 until 2023, with no year-on-year declines, let alone a drop of more than 20%. The dividends started from $0 in 2003 and increased steadily to $2.16 in 2023, indicating a robust growth in dividend payouts. This growth trajectory showcases a strong and positive trend for Starbucks, making it a potentially attractive stock for income-seeking investors. Specifically, the consistency and gradual increase in dividend per share demonstrate Starbucks' ability to generate and distribute increasing amounts of cash to its shareholders over time, without experiencing any negative volatility that would lead to decreases in dividend payments. This trend is exemplary and reflects well on Starbucks’ financial health and stability, suggesting not just a commitment to returning value to shareholders but also the operational resilience and profitability required to sustain such a practice. This trend is exceptionally positive, reflecting the company’s strong financial management and growth strategy that can support and potentially increase dividend payments over the long term.

Dividends Paid for Over 25 Years?

Analyzing whether a company has consistently paid dividends for over 25 years provides insights into its financial stability and reliability as an investment. A steady or increasing dividend payout over a long period is indicative of a company's ability to generate profits and return value to shareholders. We're looking into this aspect for Starbucks (SBUX) to understand its dividend payment history and its implication for investors.

The data for Starbucks (SBUX) shows that it started paying dividends in 2010, and has since continued to increase its dividends per share every year through to 2023. Although SBUX has not been paying dividends for over 25 years, the consistent increase over the past 14 years is a positive indication of the company's financial health and dedication to returning value to its shareholders. This trend of steadily rising dividends suggests that Starbucks is managing its finances well and is committed to maintaining a shareholder-friendly policy. The growth in dividends from $0.18 in 2010 to $2.16 in 2023 demonstrates the company's robust profit generation and its capability to increase shareholder returns over time. This is positive for investors looking for a company with a reliable and growing dividend income, despite the fact it does not meet the criterion of paying dividends for over 25 years. It's important for investors to focus on the quality of the dividend payments—including their growth and sustainability—especially when evaluating companies that have a shorter dividend payment history, but are showing strong financial health and growth prospects.

Reliability of Stock Repurchases:

Reliable Stock Repurchases Over the Past 20 Years?

A reliable stock repurchase program often signals company confidence and financial health, returning value to shareholders by reducing the number of outstanding shares and potentially increasing earnings per share (EPS). This analysis will focus on Starbucks (SBUX) to assess the trend in their share repurchases over the past 20 years.

Starbucks has been actively repurchasing its shares over the last 20 years, with significant buybacks in 12 of those years. This consistent buyback activity, especially in years such as 2006, 2007, 2008, and more recently in 2015 through 2023, indicates a strategic approach to returning value to shareholders. The number of shares in the market peaked in 2005 at about 3.26 billion shares, likely due to a stock split or similar event, but apart from this anomaly, the trend shows a gradual decrease in outstanding shares from about 1.6 billion in 2003 to approximately 1.14 billion in 2023. This reduction in shares by nearly 28.9% over 20 years, alongside an average repurchase rate of 0.9043 (indicating on average less than 1% of total shares are repurchased annually), demonstrates both the company's ability to execute its stock repurchase plans and reflects positively on its financial health and stability. Although the average repurchase rate may seem modest, the consistent reduction in outstanding shares highlights a reliable and sustainable approach to shareholder value enhancement. This consistency and the careful selection of buyback years suggest Starbucks is effectively using repurchases as a tool for financial management and shareholder value maximization, especially noting that buybacks were made even during economically challenging periods (2008 financial crisis and the 2020 pandemic). Overall, this trend is indicative of a strong and positive management strategy towards shareholder value and financial health of the company.