Investing In Top Coffee Dividend Stocks
Love it or hate it coffee is here to stay. Whether it’s part of your morning ritual or simply an infrequent indulgence, coffee is very much a part of most peoples lives. In fact, in the U.S. alone the coffee industry is worth over $30 billion and worldwide it’s a staggering $100 billion a year business. Coffee is the second most sought commodity in the world after oil. Each year we drink over 500 billion cups and more than half of Americans over the age of 18 drink coffee daily. These numbers alone suggest a very stable and reliable industry that includes many top tier companies that sell this highly sought after commodity. Of course, being dividend and income oriented investors we are keen on stocks that can also pay us a quarterly income. That being said let’s start our rundown of top coffee dividend stocks.
First up is a a well known company that really needs no introduction and is often synonymous with the word ‘coffee,’ Starbucks Corporation (SBUX). A new dividend payer having started its dividend distribution policy in 2010, SBUX currently yields a relatively low 1.40% with an equally low payout ratio of 38.7% which pretty much ensures a safe dividend based on current cash flow. Having initiated a dividend policy a few years ago many are of the opinion that SBUX has finished being a growth company and has entered a new phase of corporate maturity. While this is true to some extent, SBUX still has tremendous growth opportunities abroad especially in China with over 1,000 stores to date and growth in Japan, Korea and India as well. This accelerated international growth has caused SBUX share price to jump way ahead of earnings giving the stock a very high PE of 401.73. Normally, I wouldn’t touch a stock with such a high PE, but you cannot discount the tremendous growth the company is continuing to experience overseas.
Another high growth, new dividend paying coffee company occupies a ubiquitous spot in many homes and offices across the country. The maker of the widely used Keurig single serve coffee machine, Keurig Green Mountain, Inc. (GMCR). Having started its dividend distribution in 2014 and paying a very low yield of only 0.80% this high growth stock has the ability to continue its dividend distributions with its low payout ratio of only 26.4%. GMCR also has a relatively high PE of 34.17 which puts it above the S&P and industry peers but I guess that’s what you get with a company that is still in growth mode.
With my recent interest in Canadian bank stocks I figured I must expand my search for top coffee dividend stocks outside the U.S. and look to our northern neighbors and Tim Hortons Inc. (THI). THI develops and franchises quick service restaurants primarily in Canada and is one of the leading retailers of coffee, espresso, iced cappuccinos and teas. The stock currently offers a decent yield of 2.10% with a moderate payout ratio of 42.2%. Like SBUX and GMCR, THI has a relatively short dividend distribution history but managed a very impressive five year annualized dividend growth rate of 23.52%. Definitely a high growth dividend stock by any measure. Can THI keep up this high dividend growth rate? For me, it’s all about future growth and expansion from their current bread and butter home turf. On the valuation side the stock has a PE of 20.58 which is below its peers and has a forward PE of just 16.6 which can make this a potential relative bargain in this market going forward.
‘America runs’ on this next coffee-centric stock, Dunkin’ Brands Group, Inc. (DNKN). DNKN currently yields 2.10% with a moderately high payout ratio of 60.1%. Like the stocks above, DNKN may have a short dividend history but a healthy dividend growth rate having raised its dividend payments from $0.15 a quarter in 2012 to $0.23 a quarter in 2014. Currently, DNKN has a high PE of 31.21 putting it well above its peers and the S&P. It seems like the share price has run ahead of this one recently. You might want to wait before pulling the trigger at these levels.
Our next coffee dividend stock claims that ‘The best part of wakin’ up… is Folgers in your cup.’ The J. M. Smucker Company (SJM), a business more known for its namesake jams and jellies, also produces coffee under the Café Bustelo, Millstone , Café Pilon and Folgers brand names. SJM currently yields a decent 2.20% with a moderate payout ratio of 42.7% and has been growing its dividend for the past twelve years. In fact, SJM has a pretty impressive ten year annualized dividend growth rate of 9.47%. On a valuation basis the PE of SJM is 19.32 putting it below its peers and not much higher that the S&P in general. Of course the forward PE makes the stock a little more attractive at 17.2.
When your coffee ‘Is good to the last drop’ you know we’re talking about Maxwell House and Kraft Foods Group, Inc. (KRFT). KRFT also produces and distributes coffee under the brands Gevalia, Yuban and Tassimo. A dividend stalwart with a home in many portfolios, KRFT currently yields a generous 3.50% with a moderately high payout ratio of 65.6%. Of course, the unusually low PE for this stock at 12.68 might make this company a decent buy at current levels. Of course, KRFT, post stock spin off, is no longer a high growth company and one must consider that fact before investing. Still, its grocery business and stable coffee business can justify a buy and the juicy yield doesn’t hurt either. Of course, if you are looking for growth read on and consider snack food giant Mondelez International, Inc. (MDLZ).
MDLZ, in 2014 announced its intention to combine its Jacobs coffee business with D.E Master Blenders 1753 B.V to form the world’s leading pure-play coffee company to be called Jacobs Douwe Egberts. MDLZ, a spin off of Kraft currently yields 1.50% with a low payout ratio of 32.6%. How this coffee business merger will affect future earnings of MDLZ remains to be seen. Current PE for this stock stands at 34.8 which makes it quite pricey for the market today but you must also take into consideration the high growth international snack food business of MDLZ which has caused share price to rise as people are willing to pay up for this future overseas growth.
The next time you reach for your cup of morning Joe think about some of the above multi-billion dollar companies that retail our favorite black elixir. Are any of these dividend paying coffee stocks in your portfolio? Let me know below.
Disclosure: Long KRFT, MDLZ