Drinking Coffee for Dividends. SBUX

Starbucks
Starbucks

Who needs coffee. Lots and lots of coffee. Who likes their sugar with coffee and cream? Maybe some caramel too? Mmm, caffeine.

Starbucks (SBUX) has over 22,000 stores and was founded in 1985. That comes out to opening about 700 locations a year. That is some impressive growth. They are headquartered in Seattle, Washington.

Currently, Starbucks (SBUX) pays a low dividend of only 1.3% and we usually look for higher amounts. To make up for this low starting dividend yield, we need growth to replace it.  That way, we will eventually have a great dividend yield. From its 1st dividend payment in 2010, they have doubled it twice, going from $0.20 to $0.80 per share including stock splits. Hoping they keep this up, this will quickly pay a good dividend on YOC (Yield on Cost). At this rate, in 9 years, they will be paying 10.4%.  In another 9 years, they could be paying 83% dividend YOC, which would equal $51 per share per year.  Although, that growth rate for 18 years is probably way too optimistic.  But even if that final number is cut in half, it would still be over $25 per share per year.  This is why we like a variety of dividend payers.  We like high current and/or growth rate dividend payers. Their current dividend payment is only 50% of earnings, helping to show the current dividend safe is relatively safe.

With the average growth of 700 stores per year, this still equals a 3% growth rate. Not only do they have store count growth, but they are improving K-Cups sales and improving efficiencies in their cafes with mobile ordering. With value, Starbucks (SBUX) does not offer the cheap value we often get. They have a PE of about 38 and PS of over 4. This is expensive. However, coffee has a high margin with a gross margin of about 60%.


Therefore, we added Starbucks (SBUX) to our list of stocks by buying 5 shares for $309.05, including those commissions to buy more coffee. While the low yearly payout of $4 is small, if we get a few more doubles, this can grow into a dividend machine. Time to pour some coffee and collect some dividends.

 

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