Friday, November 4, 2016

Dividend Growth Investing at Work - Addictions and Dividends

Concept of how dividend growth investing works, Starbucks Corporation, SBUX, coffee
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Starbucks Corporation for another raise!
Something I love about dividend growth investing is that each month I get to hear about companies I own deciding to pay me more money in dividends.  Just for owning a small portion of said companies.  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  That's dividend growth investing at work!  I mean who doesn't like getting a raise for doing nothing?  Dividend growth investing is far from a get rich quick investment strategy, rather you need to remain focused on the long term goal to be successful.

Emerson Electric (EMR) kicked off November with a dividend increase, although it was meager at just 1.1%.  Well, Starbucks Corporation (SBUX) announced earnings as well as a huge dividend increase yesterday to help pick up the slack.  The new dividend payout is $0.25 which is an excellent 25% bump higher from the previous payout of $0.20.  Starbucks Corporation is a Dividend Challenger with 6 consecutive years of dividend growth.  Shares currently yield 1.93%.

Since I own 56.208 shares of Starbucks in my FI Portfolio this raise increased my forward 12-month dividends by $11.24.  This is the 3rd dividend increase I've received from Starbucks since initiating a position in 2014.  Cumulatively my income from Starbucks has increased by 92%!!!  According to USInflationCalculator the total rate of inflation over the same time period is 2.0%.  So Starbucks is growing my income ONLY 46x faster than inflation thus far.  Oh darn!




A larger version of the chart can be found here.

Starbucks' dividend history isn't exactly the longest, but they make up for it with excellent growth.  Just for some perspective on how fast the dividend has grown the very first payment in 2010 was $0.05 and the new payout is 5x that.  Obviously growth like this can't last forever, but I do think they are one of the best consumer discretionary brands out there and have the potential to build up a very lengthy dividend streak.  
dividend growth investing, dividend growth rates, Starbucks Corporation, SBUX, coffee
Starbucks Corporation (SBUX) Annual Dividend and Rolling Dividend Growth Rates Since 2010
An interactive graphical version of the previous chart can be found here.

As usual the dividends and dividend growth rates are based off calendar year payouts and don't necessarily sync up with the fiscal years.

That's impressive dividend growth and just what investors love to see from the low yield-high growth holdings in their portfolio.  What really stands out to me is the consistency with the dividend growth with the "worst" (Can you really say that?) 1 year growth rate coming in at 23.60%.

I haven't read through the full earnings release, but just skimmed the highlights and they were solid.  Comp store sales showed 5% growth in the Americas, 4% in the US, 6% in China and 4% globally.  GAAP EPS for the quarter came in at $0.54 which is a 26% increase and a record for Starbucks.  Management also guided to 10-11% earnings growth for fiscal year 2017.

So everything seems to be running smoothly and I hope to get a chance to add more shares to my portfolio.  If I had more cash I would have already added shares or at least been selling some puts.  Starbucks' share price had actually declined nearly 14% YTD despite excellent results like these.  Much of that was likely due to the valuation being stretched towards the end of 2015 and is still a little bit high than I'd like, but reasonable at around 24.7x the midpoint of 2017 guidance.

Wrap Up

My forward dividends increased by $11.24 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.11% this raise is like I invested an extra $361 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

For a dividend growth investor there's not much better than hearing news of a dividend increase.  So far this year I've received 48 increases from 39 companies increasing my forward 12-month dividends by $273.48.

My FI Portfolio's forward-12 month dividends increased to $5,462.17 and including my Loyal3 portfolio's forward dividends of $66.13 brings my total taxable account forward dividends to $5,5528.30.  My Roth IRA's forward 12-month dividends remain at $241.75.

Expected Raises in November:

Becton, Dickinson & Company (BDX)

Preivous Raises in November:

Emerson Electric (EMR)

Do you own shares of Starbucks Corporation?  How long do you think they can maintain 10%+ annual dividend growth?

Please share your thoughts below.

Image courtesy of digitalart on FreeDigitalPhotos.net.

11 comments:

  1. I don't own SBUX but at 42% payout ratio, they could growth 10% for another 3 years, then 5, then 3% if expansion stalls. A few years ago, they were trying to have SBUX selling alcohol, which is a more lucrative business, I don't know if they can somehow still make Starbuck "remain cool" and "hip" for the hippies while still serving alcohol. They might have to rebrand it into an alcohol place. They also try to bring in some real food. If any of these things are successful, they can increase dividend 10-20% on a yearly basis, I wouldn't be surprise.

    Alcohol is great, it's probably cost them 35 cents for 1 shot, and 6 oz of coke, and they can sell that Rum on coke for $7, at SBUX, they can sell for $8 because it's cool. :)

    Congrat on the raise!
    Cheers!

    ReplyDelete
    Replies
    1. vivianne,

      The payout ratio is a bit higher than I would expect considering the huge dividend growth they keep giving. In my opinion they still have a good runway for growth through same store sales and adding more to their store count, mainly overseas for the new stores. But the payout ratio will likely be a cap on the dividend growth because there isn't as much room for payout ratio expansion currently.

      Thanks for stopping by!

      Delete
  2. SBUX is a fantastic company and its something that I would love to buy more of, if I can get better valuations. Congrats on the raise.

    R2R

    ReplyDelete
    Replies
    1. R2R,

      Starbucks is one of my favorite consumer discretionary picks for the next decade. Although, based on their earnings maybe it's swapped to a consumer staple. I've been quite surprised to see SBUX and NKE both lagging the market as much as they have this year. They both have great future growth and while a recession will hurt them short term their brands are ridiculously good. Both of those are companies I want to load up on during any kind of market calamity as well as V and FB is another one that I'm eyeing even though it doesn't pay a dividend.

      All the best.

      Delete
  3. I want to pull the trigger on SBUX but their future growth potential keeps giving me pause.

    ReplyDelete
    Replies
    1. DL,

      What in particular has you concerned about their future growth potential? The way I see it there's still a huge potential for international expansion, although domestic is probably close to saturated in terms of store count. Just curious about your thoughts on it.

      Thanks for stopping by!

      Delete
  4. SBUX is a great company but I just haven't found a good entry point yet. I will continue to be patient and hopefully it will pay off. I did enjoy receiving the Emerson raise as well. Nice article. Thanks for sharing!

    ReplyDelete
    Replies
    1. MD,

      It's still overvalued here, but that tends to happen with the growth-ier companies. I'd love to add some more but like you it's just not at a valuation I'm comfortable with yet. Some day it'll get better though.

      Thanks for stopping by!

      Delete
  5. I think SBUX is a long-term winner. I plan to load up on it when we see the next major dip.

    ReplyDelete
    Replies
    1. Derek,

      I share your thoughts regarding SBUX. I'm working on building my list of companies that I want to really load up on whenever the markets do go a bit haywire because eventually they will.

      Thanks for stopping by!

      Delete
  6. Hi JC,
    Congrats on a great month! Even if you're not buying as much new stock, it's great seeing the numbers climb higher by themselves :)

    Although SBUX operates in an industry that has a low barrier to entry, the company has a strong brand and economies of scale and I like the company in general. But their dividend yield is too low for me to consider it as a core holding; despite the continued growth of the dividend.

    Best wishes,
    -DL

    ReplyDelete