Wednesday, March 24, 2010

A big day for Starbucks (SBUX)

FYI..No, I'll never write about Starbucks without posting this Family Guy clip...

Shares of Starbucks (SBUX) are down a few pennies today, but there is some news to cheer. The company announced this morning that they would begin paying a quarterly dividend of 10cents. Usually, when companies announce the initiation of a dividend it is quite a piddly number, but this one starts out at a yield of 1.6%....not bad. They also announced an expansion of the current share buyback plan.

From the release:

The quarterly dividend of $0.10 per share will be paid on April 23, 2010, to shareholders of record on the close of business on April 7, 2010. While future dividends will be subject to Board approval, Starbucks announced that it is initially targeting a dividend payout range of 35 percent to 40 percent of net income.
Starbucks Board of Directors has also authorized the repurchase of 15 million shares of the Company’s common stock. This authorization is in addition to 6.3 million shares that remain available for repurchase under previous authorizations.
“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 cfo. “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.”
The company, once one of the pricier stocks in terms of its P/E ratio or Free Cash Flow Yield (FCFY%), is quietly growing into its valuation. For better or for worse, much of the expanding Free Cash Flow comes in the form of reduced Capital Expenditures. Sometimes that "under-CAPEXing" can be worrisome, but in Starbucks' case they've been spending like drunken sailors for too long:

The expanding Free Cash Flow, coupled with a mightily improved cash hoard, is turning this company into a decent Free Cash Flow Yield:

Later this morning, Starbucks also updated those not able to attend today's shareholder meeting with some plans for the future:
“We made very tough decisions in the most challenging economic climate any of us had ever seen,” Schultz added, “but together we were able to take nearly $600 million of costs out of the company while building new muscle in our operations and delivering double-digit improvements in key customer satisfaction metrics. By staying true to our core purpose and exceeding the expectations of our partners, we’ve also been able to exceed the expectations of our customers and deliver increased value to our shareholders.”
Starbucks also saw record free cash flow in fiscal 2009, and has projected that free cash flow will further increase to one billion dollars in fiscal 2010. Together, these improvements are enabling the company to continue to make key long-term investments in the U.S. and abroad, increase by 15 million the number of shares authorized for repurchase and, for the first time in its history, initiate a cash dividend to shareholders.
The company discussed plans to extend Starbucks VIA® Ready Brew to more than 30,000 points of distribution in the coming months. Additionally, Starbucks highlighted a multi-channel strategy to create a billion-dollar business with Seattle’s Best Coffee through partnerships with other retailers, franchising and brand extensions through consumer packaged goods channels. Starbucks also discussed plans to expand its retail presence in both the U.S. and internationally, applying lessons learned from its improved U.S. business to each of its other markets in locally relevant ways.
Copyright 2010 AlphaNinja

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