Starbucks Corporation (NASDAQ:SBUX) has constantly been underperforming in the overall market. The company is also far behind its rivals Dunkin’ Brands (NASDAQ:DNKN) and McDonald’s (NYSE:MCD). The company recently reported its annual dividend yield and the figures stood at 1.6 percent- which looked quite bad when compared with the Dunkin’s figures of 2 percent and McDonald’s figures of 3.6 percent.
Where investors were hoping that the company would pay a higher dividend in order to make up for the low price performance, here are the reasons why the company can’t do so, at least in the near future.
Starbucks Corporation (NASDAQ:SBUX), in the fiscal year 2014, earned a total of $2.71 per share and gave out $1.04 in dividends. The payout ratio of company’s stocks stand at 38 percent. Starbucks increased its dividends by 23 percent at the end of the year, bringing the overall dividend to $1.28. The company’s rivals have quite a high payout ratio; McDonald’s ratio is reported to be at 64 percent and Dunkin’s ratio is at 57 percent.
As far as the return on equity ratio is concerned, the figures currently stand at 42.4 percent. These numbers are quite high when compared with the 35.1 percent McDonald’s ROE and 44.6 percent Dunkin’s ROE. ROE represents the company’s ability to turn the investors’ money into profits; the higher the value, the more payouts company can give. Since the returns ratio of Starbucks Corporation (NASDAQ:SBUX) is high, it looks like the company can afford to pay even higher dividends than Dunkin and McDonalds.
But it should be kept in mind that a higher ROE does not always give rise to a higher dividend, for a company that is in a process of expansion needs extra money for its ongoing projects and schemes. So, if Starbucks Corporation (NASDAQ:SBUX) is expanding or has better opportunities to reinvest the money, it probably won’t increase the dividend.
In order to fully understand the cash spending of Starbucks, it is important to analyze its FCF. The company paid out a total of $783.1 million in dividends; the FCF of the company, however, dropped to -$553.3 million, which means that the company can’t afford to give out more dividends.
The company is also expanding itself in the country of China. Starbucks has around 1,400 stores there but it plans on increasing the number to 1,500 by the end of the year 2015. In order to make the business progress and open up new outlets, the company definitely needs extra cash in its hands.
As for the share prices of Starbucks Corporation (NASDAQ:SBUX), the stocks are fluctuating right now. Perhaps the reason is the low dividend payout by the company. On the last trading day, November 14, 2014, the company started its stocks at $78.08 and closed at $78.12, after hitting the highest figures of $78.30. The company has a total market capitalization of $58.51 billion, with a P/E (price to earnings) ratio of 28.77.