Starbucks Hikes Dividend By 10%; Cowen Upgrades Stock To Buy

Starbucks announced that its Board of Directors has approved a 10% hike in the coffee chain’s quarterly cash dividend to $0.45 per share.

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Starbucks (SBUX) said that the quarterly dividend, which will be raised from $0.41, will be distributed on November 27 to shareholders of record on November 12. The increase boosts the company’s annual dividend rate to $1.80 per share.

“The Board’s decision to raise our quarterly dividend demonstrates confidence in the strength of our recovery and the robustness of our long-term growth model,” said Starbucks CEO Kevin Johnson. “Our cash flow generation is strong, and we remain committed to reducing our financial leverage while continuing to invest for future growth.”

Starbucks initiated its dividend payout in 2010 and has increased it in each of the past 10 years.

Shares in the coffee chain had been hard hit hard earlier this year as the coronavirus pandemic led to store closures. The stock has recovered most of its losses and is now trading down about 2.4% year-to-date.

Cowen analyst Andrew Charles on Wednesday upgraded SBUX to Buy from Hold and boosted the price target to $99 (15% upside potential) from $77, saying that he views the stock as “attractive on a total-shareholder-return basis, with room for multiple expansion”.

“We view early signs of the US recovery as durable, aided by broadening digital access through expanded pay options for loyalty and 23% of U.S. stores adding curbside pickup,” Charles wrote in a note to investors. “Covid-19 presents new efficiency opportunities [to drive] 15% earnings-per-share growth for 2022-2023.”

Charles sees Americas same-store sales as the key metric for SBUX, given a 0.8 correlation with SBUX’s forward price-to-earnings multiple pre-covid-19.

“The shares risk/reward balance is compelling, as our bull/bear cases suggest 2-to-1 upside/downside ratio,” the analyst summed up.

Meanwhile, the rest of the Street is cautiously optimistic on the stock with a Moderate Buy analyst consensus showing 11 Buys versus 9 Holds. The $86.41 average price target reflects analysts’ expectations that shares are more than fully priced at current levels.