Starbucks is the star of our times and has cemented its place in our urban culture. Starbucks has grown on to become a brand name which everyone wants to be associated with, the exponential growth of the phenomenon of Starbucks has been accompanied by a stellar and stable dividend pay-out. Starbucks has leveraged the growth of the consumer product segment and impressed investors and analysts alike. The consumer product segment includes products such as VIA Instant Coffee and Bottled Frappuccino. Starbucks store growth over the past year has seen them opening a record number of stores in China and expanding operations in established markets such as the U.K and USA. Starbucks has previously been criticized for overexpansion and faced the brunt of their decisions during the period of the 2008 financial crisis wherein to cut losses Mr. Howard Schultz had to come into the driving seat and close many company-owned stores which were dragging cash reserves down.
Starbucks has three main revenue generators:
-USA operations
-International operations
-Global Products
% of all Starbucks stores in the world are in the U.S and comprises a major chunk of their revenue.
How is the Dividend decided?
With an increase in the company’s revenue, it has a choice of either reinvesting it in the company or pay out income to the shareholders who in essence are the owners of the company. As Starbucks has been increasing their revenue year on year, even with their current reinvestment into growth plans, they’re able to pay out dividends.
Starbucks is currently forecasting a loss of $ 3 Millions this quarter, this is mainly due to the global market scenario and threat of COVID-19. Starbucks has managed to give out dividends in times of crisis mainly due to sound cash management and a focus on the free cash flow available to the equity holders. It is traded on NASDAQ.
The last time Starbucks had to ride out a major blow was during the 2007-2008 recession which severely impacted their sales but they came out stronger than ever to eventually being a dividend paying stock with strong cash reserves. They first paid a dividend to their shareholders in 2010.
Starbucks aims to ride out the pandemic and innovate to get revenues up again. They can take some cues from one of their major competitors in China, who have grown exponentially since they launched their first cafe in 2017. Luckin Coffee has more of a pickup coffee culture while Starbucks sold its experience and marketed itself as the middle ground between a home and an office. They have also started innovation in the Indian markets with the launch of 1-litre drink bottles and a renewed focus on online delivery platforms such as: Swiggy and Zomato. Starbucks considers India to be an important growth market as well. Despite the current scenario, Starbucks has shown time and time again that the customers love to keep coming back to its Instagram-worthy beverages and therefore, the earnings are expected to bounce back with the China market opening again and the increased takeaway business in America. The annual dividend announced will be $1.644 per share and is on track to continue the growth pattern for 9 years straight, dividends are paid out on a quarterly basis.
Starbucks is known to move along with times and innovate extensively. Analysts at have been bullish on this stock and have high expectations from Starbucks in the subsequent years. Till then, we can sip on our Cold Brews and admire their presence everywhere from our Instagram feeds to our morning Bloomberg reports.
Comments