While for some, Starbucks (NASDAQ:SBUX) is the world's capital of overpriced coffee served with a heaping dollop of political correctness, for others, it's a vital oasis of calm, serenity, hot beverages, and Norah Jones music. It's a relaxing stop in the middle of a frantic workday, and also provides the means to meet that frantic workday on its own terms with caffeinated glory. Now, it's recently offered up a whole new reason for investors to pay attention, and one of the greatest reasons of all: a hiked dividend.
Brewing up a Bigger Dividend
The biggest news the company had to generate in the last several hours was that it hiked its dividend from its previous $0.41 per share to a none-too-shabby $0.45 per share. The move was enough to send the stock jumping upward in after-hours trading, and the gains made overnight stuck around. The stock closed yesterday at $85.92 per share, but as of this writing, it trades at $87.36.
The gains are exciting, but there's further good news behind that. The move to open up the pumpkin spice season a little early seems to have been appreciated by the market, who is putting a little extra juice in Starbucks' traffic.
The Analysts Are Having Another Round
While Starbucks' recent moves and gains are welcome developments, they're not merely welcome for us. They're also welcome moves for analysts, which in itself provides another positive indicator for the investor.
Within the last 30 days, as our research has found, the consensus on Starbucks has shifted from “hold” to “buy”. Not by a great margin, necessarily, but minds are starting to change. Just 30 days ago, we found that 16 analysts had a “hold” rating on Starbucks, and 14 had a “buy” rating. That had been part of a declining “hold” stance and a growing “buy” stance that could be traced back almost six months ago. Now, the company stands at 15 “buy” ratings and 13 “hold” ratings, a shift in the consensus for the first time in months.
This includes some recent new additions and changes, too; Cowen recently changed its outlook from “market perform” to “outperform,” echoing a change seen in late August from Stifel Nicolaus that saw the stock go from “hold” to “buy.”
Better news for investors is the growing consensus that the earlier projections on price targets were undervalued, and the consensus has been adjusting upward pretty much ever since. Since July 29, 10 analysts have adjusted their price targets for Starbucks upward by varying amounts. Most adjustments have been modest, in the $4 to $6 range, but some, like Cowen, have upgraded substantially, going from $77 a share to $99 a share.
A Changing Market, But It's Still Coffee
The dividend boost and the increased traffic in stores come at a time when just about everybody's morning routine has been fundamentally altered by the switch to work-at-home operations. But picking up a cup of eye-opener has been a common development for many for a long time, and the Starbucks drive-through lanes are just as open whether you're going to the office or back home.
Starbucks has been building systems that would help it weather a pandemic for years. It's been stepping up its online ordering system, and augmenting its drive-through capabilities for some time now. It got to the point not so long ago that customers were having a hard time getting through in the stores because the stores were so backlogged with online orders. Starbucks was actually considering entire locations devoted to pick-up operations only, and tested a couple such locations out at one point.
These points helped keep Starbucks operational through the pandemic, and they likely won't stop helping the company as businesses get back on their feet and people start going back to the office. Even if the work-at-home movement continues—and it's not showing a lot of sign that it's relenting—it's still likely to call for Starbucks fairly regularly.
Sure, people will turn to their home coffeemakers more, but people will still be eager for that coffee made as only Starbucks can. People will likely also relish a chance to get out of the house and work from somewhere that is neither home nor office. The bigger dividend definitely doesn't hurt, and with a holiday shopping season coming up—though that too will be fundamentally altered by this year that has altered everything—America will likely continue to turn to hot caffeine to help push it through a day, and that means more Starbucks.
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