Starbucks Dividend and Stock Buyback Sweeten Outlook for Shareholders
The quarterly dividend of 10 cents per share, which will be paid on April 23, is an added sweetener for investors, and an acknowledgment of the success of company's painful recent restructuring. The coffee seller believes the changes it made will allow it to generate as much as $1 billion in annual free cash flow for the next few years, and expects to return 35% to 40% of net income to shareholders.
"We are confident in the overall financial strength of our business and the strong cash flow it continues to generate," said Troy Alstead, executive vice president and chief financial officer in a statement. "Starbucks' solid cash position and cash flow outlook enable the company to invest in future profitable growth through stores, innovation and new platforms, while also returning cash to our shareholders through the initiation of a dividend and future share repurchases."
In another move that could benefit shareholders, Starbucks authorized the repurchase of another 15 million shares of common stock on top of the 6.3 million shares still authorized for repurchase from a previous announcement. Analysts generally approved of the shareholder-enhancing moves; the coffee giant seems to be regaining its footing after its fast-paced growth stalled with the onset of the recent recession in 2007.
"Since we do not expect the firm to return to lofty double-digit revenue growth in the foreseeable future, we believe this is the appropriate time to put a dividend program in place," said Morningstar analyst R.J. Hottovy.
Hottovy expects that Starbucks' strong cash flow will enable it to fund new growth initiatives, which chairman, president and CEO Howard Schultz, will unveil at the company's Wednesday shareholder meeting.
Schultz has implemented successful cost-cutting initiatives, including closing 900 stores since 2008. Now investors are anxious to find out what the company plans to do with much of the excess cash it is projected to have. In early afternoon trading Wednesday, Starbucks shares were up 20 cents or 0.79% at $25.61.