What Starbucks' Latest Dividend Hike Means for Investors
Starbucks disclosed preliminary Q4 results and suspended its guidance, but also extended its long history of dividend hikes. Here's what you need to know.
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Starbucks (SBUX) stock opened notably lower Wednesday after the coffee retailer announced preliminary financial results for its fourth quarter, which failed to impress Wall Street. However, shares have pared the bulk of these losses at last check after the company announced another dividend hike.
For its fiscal 2024 fourth quarter, Starbucks said net revenues declined 3% to $9.1 billion as global comparable-store sales fell 7%. Meanwhile, its earnings per share (EPS) were down 24% from the year-ago period to 80 cents.
The preliminary results fall well short of the $9.4 billion in revenue and $1.03 per share in earnings analysts expected, according to CNBC.
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"Despite our heightened investments, we were unable to change the trajectory of our traffic decline, resulting in pressures in both our top line and bottom line," said Starbucks Chief Financial Officer Rachel Ruggeri in a statement. "We are developing a plan to turn around our business, but it will take time."
Starbucks also said that guidance will be suspended for the full fiscal year 2025 as a result of its recent CEO transition and "the current state of the business," adding that it "will allow ample opportunity to complete an assessment of the business and solidify key strategies, while stabilizing and positioning the business for long-term growth."
Starbucks its hikes dividend again
"We want to amplify our confidence in the business, and provide some certainty as we drive our turnaround,” Ruggeri said. "For that reason, we have increased our dividend."
Indeed, Starbucks hiked its quarterly dividend by 7% to 61 cents per share, or $2.44 per share per share on an annual basis. The next dividend is payable on November 29 to shareholders of record on November 15.
Starbucks proudly noted that this marked the 14th consecutive annual dividend increase, which is notable for investors.
"Shares in companies that raise their payouts like clockwork decade after decade can produce superior total returns (price change plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with," writes Dan Burrows, senior investing writer at Kiplinger, in his feature "Best Dividend Stocks to Buy for Dependable Dividend Growth."
Additionally, companies that manage to raise their dividends year after year demonstrate "financial resilience" and a "commitment to returning cash to shareholders," he adds.
Is Starbucks stock a buy, sell or hold?
It hasn't been the best year on the price charts for the blue chip stock, which is up just about 3% on a total return basis (price change plus dividends). This vastly lags the S&P 500's 24% total return. But Wall Street remains bullish.
According to S&P Global Market Intelligence, the average analyst target price for SBUX stock is $99.97, representing implied upside of nearly 4% to current levels. Additionally, the consensus recommendation is Buy.
Financial services firm Stifel is one of those with a Buy rating on the consumer discretionary stock, along with a $105 price target.
"We are Buy-rated on Starbucks because we believe the company will show improvement in transaction trends in the U.S. under Brian Niccol's new leadership," says Stifel analyst Chris O'Cull. "Based on Mr. Niccol's track record at Chipotle and Taco Bell, we believe the company will formulate a coherent strategy and deliver better execution to improve the U.S. segment's top-line performance."
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