What’s better than payday? A payday that you didn’t have to work for. Owning dividend-paying stocks offer just that: a business working for you in the background, the fruits of which are realized via a quarterly paycheck. Even better than a dividend-paying company, though, is a business that spins excess cash off to investors and delivers business growth along the way. Such companies are likely to continue rewarding owners for a very long time.
It can be a potent combination, too, one that has averaged total returns (stock appreciation plus dividend payments) in the low double digits over the long term. In the search for great dividend payers and pay raisers, Starbucks (NASDAQ:SBUX), Store Capital (NYSE:STOR), and Hasbro (NASDAQ:HAS) belong on the list of must-haves.
Coffee culture is here to stay
Let’s start by getting the most familiar out of the way first. Though a staple of American culture, Starbucks is still a growth company — and a dividend stock to boot with a yield of 1.9% as of this writing. That’s not the biggest payout around, but it does include a 14% raise enacted this fall. The now $0.41 per share quarterly pay is more than triple what the coffee chain was doling out just five years ago.
How is Starbucks growing that payout so fast? It all goes back to balancing dividend checks with growth, and Starbucks figured out how to re-ignite sales here in the U.S. in the last year. During the 2019 fiscal year, U.S. comparable-store sales (which measures foot traffic and average guest ticket size) increased 5%. Its app and digital rewards program continue to be a big hit, as are seasonal drink rotations — combining to drive profitable increases for the company in its most important market.
And of course there’s still the massive potential in China — which is predominantly a tea-drinking society, but where coffee is catching on fast thanks to our subject company. Starbucks said comparable sales at existing stores grew 4% in the world’s largest country in 2019, and its store count increased 16% from 2018. It plans to open thousands of new locations in China in the years ahead.
It all adds up to one of the best stocks in the restaurant industry. Starbucks should continue paying — and increasing — its dividend for a long time. Shares are worth making a core holding in all types of investment portfolios.
