Dividend Increase | Starbucks (SBUX)

Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Starbucks for the dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  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.  

On October 30th the Board of Directors at Starbucks (SBUX) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.36 up to $0.41 per share.  That's a huge 13.9% increase!  Starbucks is a Dividend Contender with 10 consecutive years of dividend increases.  Shares currently yield 1.93% based on the new annualized payout.

The newly increased dividend will be payable on November 29th to shareholders of record as of November 13th.

Since I own 57.453 shares of Starbucks in my FI Portfolio, this raise increased my forward 12-month dividends by $11.49.  This is the 6th dividend increase I've received from Starbucks since initiating a position in April 2014.  Cumulatively, Starbucks' dividend has increase 215% since I purchased shares.

A full screen version of this chart can be found here.

What Starbucks lacks in length of dividend growth they've more than made up for with growth.  Between the newly raise dividend and the first dividend payment announced in March 2010, the dividend has grown 720%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 2010 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Starbucks' 5-year moving average forward dividend yield is 1.74%.  Based on the new annualized dividend a "fair" price for Starbucks would be $94.25 or ~11% higher than current levels.

The fair value range based on dividend yield theory is $86 - $104 assuming historic yield levels are indicative of future yield levels.

Dating back to March 2010, Starbucks' current yield is in the 81st percentile.  In other words only 19% of the time have shares yielded higher than current levels.

A multiples analysis shows shares to be on the expensive side.  Based on current years estimates for FY 2020, ending September 2020, of $3.08 per share the P/E ratio is 27.7x.  On an EV/EBITDA basis current market valuations are quite expensive at 20.4x.

Wrap Up

This raise increased my forward dividends by $11.49 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.97% this raise is like I invested an extra $387 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.

Thus far in 2019 I've received 43 raises from 38 of the 55 companies in my FI Portfolio.  Combined the dividend increases have boosted my forward 12-month dividends by $311.57.

My FI Portfolio's forward-12 month dividends climbed to $7,667.40.  Including my FolioFirst portfolio's forward dividends of $101.19 brings my total taxable accounts dividends to $7,768.59.  My Roth IRA's forward 12-month dividends remain at $619.08.  My Rollover IRA's forward dividends remain at $2,305.59.  Across all accounts I can expect to receive $10,693.26 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Starbucks' can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Starbucks?  

Please share your thoughts below.