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Back in November, it became clear that Starbucks (NASDAQ: SBUX) had transitioned from a high-multiple growth stock to more of a dividend stock. Earlier this month, Starbucks upped the ante, hiking its dividend another 20% for the second time in less than a year, and increasing its three-year cash return target (including buybacks) from $20 billion to $25 billion.
Caffeine cash
That new $25 billion target is a lot -- more than 33% of the company's market capitalization. And Starbucks' quarterly dividend of $0.36 now sits a lofty 44% higher than this time last year. That's some serious cash for shareholders -- companies don't usually hike their dividends more than once a year. Starbucks' dividend yield now sits at 3% based in the recent stock price.
Yet despite Starbucks' generosity, its stock declined nearly 10% in conjunction with the announcement. What's going on?
Starbucks is rapidly increasing its dividend. Image source: Getty Images.
Lowering estimates
Perhaps the dividend raise was the sugar to help the medicine go down, as Starbucks also unveiled some not-so-hot news in its June 19 presentation.
Same-store sales are now projected to have grown only about 1% in the fiscal third quarter, well below analyst estimates. The company also lowered its full-year guidance for non-GAAP (generally accepted accounting principles) earnings per share, from a range of $2.48 to $2.53 to a range of $2.39 to $2.43.
A company-wide store closure for anti-bias training on May 29 played a part in the dip in quarterly estimates. But at a consumer conference on June 19 (the first major presentation since Howard Schultz left the company), management pointed to a decline in sugary, cold Frappuccinos as the main culprit. Given the trend toward lower-sugar beverages and health-conscious lifestyles, the Frappuccino may be a continuing headwind.
Image source: Starbucks.
CEO Kevin Johnson also didn't mince words, saying in a press release that "... our recent performance does not reflect the potential of our exceptional brand and is not acceptable" (emphasis mine). Johnson continued: "Over the past year we have taken several actions to streamline the company, positioning us to increase our innovation agility as an organization and enhance focus on our core value drivers which serve as the foundation to reaccelerate growth and create long-term shareholder value."
Johnson's plan
Johnson comes from the tech world, and seems intent on getting Starbucks on a more disciplined and efficient path. As such, he's reining in Starbucks' growth plans to focus more on profits and returns. The continuing streamlining of the business will manifest itself in a few different ways.