Dividend Stocks That Won’t Give You The Jitters

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 Cafรฉ Bustelo, Millstone , Cafรฉ 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

 

32 thoughts on “Dividend Stocks That Won’t Give You The Jitters

  1. Hey DivHut,
    I am a proud owner of DNKN shares at the moment. I am also a proud customer of the food products because they offer healthier options compared to MCDonalds, Burger King, Taco Bell, etc. I usually buy the egg white wraps twice a week on the go from one job to the next. DNKN still has a ton of growth ahead of them. I am also looking to add a position in SBUX but was waiting for a dip in the stock price. SBUX dipped a little over 2% on Friday but I was waiting to see what would happen this week. A further dip would be a great buying opportunity but like you mentioned SBUX has the potential to keep riding upwards. I wouldn’t be surprised to see SBUX at $90 by end of the year. Thanks for sharing!
    DividendMongrel recently posted…Build a Dividend Growth Portfolio For as Little as $300 on Loyal3My Profile

    • Hi DM,

      Thanks for sharing your coffee holdings with us. I wonder if DNKN will come back to the west coast. They used to have a presence here in the 80s, I think, but packed up and left. I know DNKN is an east coast thing. Regarding SBUX, I think you just have to pay up for the growth. I don’t see PEs coming back down to Earth anytime soon for that stock, unless there is another major meltdown of course. It’s a great company with lots of future international growth that has driven up share prices well beyond normal earnings. Assuming no major events occurring, I too can see SBUX continue its rise towards the end of the year.

        • Hi Ed,

          Thanks for sharing this news about DNKN. I remember seeing them in California over 25 years ago and other parts of the west and then one day they were all gone. Let’s see how this westward expansion will affect their revenue going forward. Thanks for commenting.

      • Hi Ed,

        So true. I have been looking at Loyal3 for a while now and it does really look enticing to invest for $0 commish but I already have a Scottrade and Sharebuilder account and hesitate to open a third. The Sharebuilder account has such low fees that Loyal3 doesn’t compel me yet. We’ll see. SBUX is probably one of the more popular companies at Loyal3 I would guess. Thanks for commenting.

  2. Hi DivHut,

    Thanks for analysing another great sector.
    As an European I don’t know many of these companies. Except Starbucks of course.
    We do have family living in Canada and they talk about Tim Hortons all the time.

    Currently I feel like the yield and growth of these companies are too low for my portfolio.
    KRFT on the other hand, deserves further analysis and I will definitely add it to my watchlist.

    Best wishes,
    DfS
    Dividend for Starters recently posted…Recent buy – JulyMy Profile

    • Hi DFS,

      I’m happy you enjoyed my latest dividend read. KRFT is a great, solid dividend payer but not a high growth company. If you are looking for growth I would suggest looking at MDLZ. Coffee is definitely a great industry to invest in as so many people consume it on a daily basis. Thanks for commenting.

  3. I don’t drink coffee myself but I love investing in coffee stocks because caffeine is addictive and legal ๐Ÿ™‚ Last year I’ve calculated that every time someone buys a $4 cup of Starbucks coffee I get 0.0000004 cents in dividend income ๐Ÿ˜€ But since then SBUX has raised its dividend so I should be getting a bigger share now. I’ve only thought about investing in coffee franchise stocks, but I like your suggestion to expand into coffee machine manufacturing business. I’m long THI, SBUX, and MCD ๐Ÿ˜€
    Liquid recently posted…Relative WealthMy Profile

    • Hi Liquid,

      For a guy that doesn’t drink coffee you sure have a pretty caffeinated portfolio with THI, SBUX and MCD. That’s a pretty cool calculation you came up with to determine your dividend income per cup of coffee sold. I guess SBUX can be a great stock for years to come with a lot of growth still in front of them. Thanks for sharing your holdings.

    • Hi R2R,

      Glad you enjoyed my latest read. I have to agree with you regarding SBUX. To me it seems people are still willing to pay up for the future growth of the company outside the U.S. For me, I’d rather stick with an old reliable like KRFT. Give me better yield but less growth and stability and I’m OK. A lot of our Canadian blogger friends seem to be keen on THI. After I learned about those solid Canadian banks, THI might also be worth a look. Thanks for stopping by.

    • Hi DGJ,

      There’s no doubt that coffee is a huge industry. The question is how you want to play it. I agree that SBUX probably offers the most growth from all the stocks mentioned. But that PE better be justified with some pretty high future growth. I’m not sure I’d jump in at this point. KRFT is your good old, reliable, proven standby. One of my favorites in fact. Thanks for commenting.

    • Hi LAH,

      Thank you for the encouraging words. To be honest the only stock that I considered was SBUX but I just couldn’t accept that high PE even though they are a growth stock. Oh well… I missed on some fast growth that’s for sure. Thanks for sharing the stocks that are on your radar.

    • Hi J,

      Well from the stocks mentioned I have KRFT and MDLZ. To be honest, I never focused on coffee related stocks, though in retrospect, SBUX would have been a great investment if it was bought about five years ago. KRFT is a long time holding of mine and with that juicy yield it makes holding on to the stock very easy. Thanks for stopping by.

  4. SBUX actual P/E looks much better than the 400+. They had a one time charge over the last year that hurt the GAAP EPS number and brought EPS down to like $0.08 or somewhere in that area.

    http://www.passive-income-pursuit.com/2014/04/did-i-really-buy-company-for-470-times.html

    I’d really like to own MDLZ but the PE is too high for my liking. Although as a former PM company (MO, PM, KRFT, MDLZ and I’m sure others that I’m missing) I think DG will be a priority for this company.
    JC @ Passive-Income-Pursuit.com recently posted…Another Rental PropportunityMy Profile

    • Hi PIP,

      Thanks for the heads up regarding the skewed PE. I remember their “fight” with KRFT a while back and realize that this negatively impacts earnings. Still, I think SBUX share price is ahead of its earnings and would wait to pull the trigger on it well below $80. I just think it’s still a bit too rich despite future growth prospects. Thanks for commenting.

        • Hi PIP,

          Under $71 is a nice entry point, though I could kick myself for not loading up during the financial crisis when SBUX was under $15… Can’t look back only forward and I can’t complain about my current portfolio either.

    • Hi AFFJ,

      Appreciate you stopping by and commenting. KRFT seems to present the best value/yield from the group. Though a low growth stock it has the numbers to sustain a great current yield and further increases going forward.

  5. I’ve owned Starbucks for a while now. I don’t drink coffee but I know that everyone else is addicted to them so I just put my money where their mouths are so to speak. I just recently picked up Kraft, I realized one day when I was at the grocery store that there were quite a few things that I regularly buy that has their name on it so I thought it would be a good strong staple to own. I don’t expect huge growth from them, but they are well established so I’m fine with them just lowering the overall beta of my portfolio.
    Zee @ Work To Not Work recently posted…The easiest way to early retirement is to fast forward lifeMy Profile

    • Hi Zee,

      I never go to MCD but say thank you to the people every time I drive by one and see cars in the drive thru. You don’t have to be a coffee drinker to benefit from some amazing coffee distributing companies. Regarding KRFT, it is a low growth business but with a great yield and low PE. Looking for higher growth… then choose MDLZ. Thanks for sharing.

  6. Hi Divhut,

    I recently bought THI. I’m a long term customer of Tim Horton’s coffee. Every time I pass in front of a Tim Hortons store, there’s a lineup. People love Tim Hortons here in Canada. Their exposure is still thin in the US but they have expansion plans. Growth is going to be hard to achieve in Canada since the market is pretty saturated so they need to expand abroad. It will not be easy to succeed in the US. Competition is fierce and they had to close some stores in the recent years. But they hired a new CEO recently who is more experimented with international expansion. So… We’ll soon see where it goes!

    THI is a solid business with a good reputation. It’s profitable and its customers come back again and again. I only own a couple shares but I’ll definitely add to my position as soon as an opportunity arises.
    Allan recently posted…Wide moat stocks in the S&P500 Dividend AristocratsMy Profile

    • Hi Allan,

      Thanks for sharing your insight about THI. It’s always good to hear from a local about a stock or brand that is not widely recognizable. From what I have seen, THI seems like a great dividend stock with room for growth. I hope the roll out into the U.S. or other countries for that matter will be better than the TGT roll out in Canada. Being in the U.S. you really don’t get to hear all that much about some great Canadian companies. Appreciate your comment.

  7. Update:
    Regarding Tim Hortons (THI). There are approximately 10 Dunkin Donuts in my city. A Tim Hortons opened up a few years ago and it didn’t last a year before they were shut down. They were swallowed up by the competition in my city. America runs on DNKN and I don’t see THI doing well here. Just like I don’t see Dunkin Donuts doing well in Canada because of the brand recognition.
    DividendMongrel recently posted…Dividend & Interest Earnings-July, 2014My Profile

    • Hi DM,

      Thanks for the DNKN/THI update in your city. It’s always good to get a real life report from the street. Your observation reminds me of the TGT expansion into Canada and how awful it has been. Sometimes, an entrenched brand can offset an outsider despite its momentum. I guess time will tell how DNKN expands into the western U.S.A. and how well THI can expand south.

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