Will These Dividend Stocks Give You a Jolt or a Crash?
I've long held the theory that all coffee should be ordered in three words or fewer. Small black coffee. Tall soy latte. Double-shot espresso. Like most things in life, I like my coffee low-maintenance. But because I like my stocks high-performing, I'm looking at dividend-paying coffee stocks to see which are sweet, and which will leave you with a bitter aftertaste.
According to the National Coffee Association, whose meetings no doubt have the best pastries ever,40% of 18- to 24-year-olds, and 54% of 25- to 39-year-olds, drink coffee daily. That's an increase of approximately 10% for each age group. Nearly a third of the 18-to-39 group said they feel better about their financial situation than this time last year. And that bodes well for the gourmet-coffee industry, whose lattes have often been cited as the poster child for financial decadence.
Remember the days when people thought no one in his right mind would pay $4 for a cup of coffee? Those days have come and gone, Fools. Starbucks (NAS: SBUX) announced an 8% increase in global same-store sales, with 6% coming from additional traffic; the other 2% came from a price increase. During a recent trip north, I saw Starbucks locations along the New Jersey Turnpike charging up to 40% more for identical offerings than in my hometown of D.C.
Starbucks also reported a 25% revenue increase from this time last year, and a 20% increase in operating margin. The recent purchase of all retail operations in Switzerland and Austria is just part of the company's aggressive growth strategies.
When CEO Howard Schultz returned in 2009, gross margin made a staggering jump from 19.2% to 55.8%. And Starbucks has kept it up; the figure currently sits at 58.3%. With a P/E of 25, Starbucks does look expensive compared with rival Caribou Coffee (NAS: CBOU) , which has a P/E of 8, but it looks ridiculously cheap next to Green Mountain Coffee Roasters (NAS: GMCR) , with its P/E of 89.
Since its first dividend in April 2010, the company has paid out quarterly, increasing from $0.10 to $0.13. My Foolish colleague John Grgurich has called Starbucks one stock for the long haul. Buy.
(NYS: KFT) , maker of Maxwell House coffee, has shown a healthy year-over-year gross-profit increase, with a jump of nearly $4 billion in 2011. The coffee business is doing so well, it will become part of North American Grocery, a soon-to-be publicly traded company spun off from the Kraft mother ship. This is a strong, long-term buy-and-hold company.
In 2008, when other companies were reducing or eliminating their dividends, Kraft increased its payout, from $0.27 to $0.29. That was just the latest in a long line of increases; the dividend in 2002 was $0.13.
's (NYS: SJM) Folgers brand saw a volume decline in quarterly earnings reported in August. However, profits from the newly acquired Rowland Coffee brand helped offset Folgers' losses, as did volume gains in natural beverages and baking mixes. Overall, gross profits are down, from 39% in the period ended July 31, 2010, to 36.3% in the period ended July 31, 2011. But the decrease hasn't hurt Smucker's dividend, which was already upped to $0.48 from $0.44 earlier this year. This is a steady, diversified company with a lot to offer. After all, with a name like Smucker, it has to be good.
On the heels of its success with McCafe, McDonald's (NYS: MCD) announced its 100th straight month of comparable-store sales increases globally, and it has a reported $2 billion cash on hand. If that sounds good to you, keep in mind that the increase was less than expected. Not helping matters is the $11 billion in debt the company currently has on the books.
Apparently thinking its customers deserve a break, McDonald's has paid a steady dividend since 1976; although the payout has gone from $1.52 in the 1980s to $0.61 for the current quarter, the dip is the result of several splits over the past few decades.
It may sound like the name of a '70s folk band, but "apple fritter" and "dutchie" were the two original products offered alongside Canadian Tim Hortons' (NYS: THI) coffee. Now operating in the States as well as our great neighbor to the north, Tim Hortons reported a revenue increase of nearly 10% to $702.8 million, from $639.9 million last year. Same-store sales increased 3.8% in Canada and 6.6% in the States. In March 2011, Tim Hortons bumped its dividend from $.013 a share to $0.17. Thankfully, the company's menu now offers more than three products.
Don't stamp your passport just yet, though. The company's cash on hand is all over the map, ranging from $157 million in July 2010, to $574 million in January 2011, to a mere $96 million in July 2011. This inconsistency no doubt comes as a result of expansion; the company recently signed a deal to open 120 stores in the Persian Gulf. It's a risky move, given that the company recently closed 36 restaurants and 18 kiosks in New England. Its long-term debt also makes me nervous; it's increased from $237 million in July 2010 to $346 million in July 2011. This is definitely a caffeine-crash stock, Fools. Wait for the buzz to wear off before taking a second look.
Whether you like your coffee complicated or simple, in three words or fewer or more than a dozen, you're not alone. Nearly half of all Americans have a coffee habit, and it doesn't look as though they'll break it anytime soon. In the meantime, sit back, enjoy a cup, and wait for the returns to roll in.
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At the time this article was published Fool contributor Molly McCluskey owns no shares in any of the companies mentioned. The Motley Fool owns shares of Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Tim Hortons, McDonald's, and Starbucks. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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