Did Starbucks Just Give Investors Nearly 2.9 Billion Reasons to Buy Its Stock?

Starbucks (NASDAQ: SBUX) is infusing its stock with a tiny shot of something good. Earlier this month, the unavoidable coffee giant declared its latest dividend raise, and the timing felt opportune -- the investor morale-boosting move came several weeks in advance of the company's fiscal fourth-quarter earnings release, scheduled for Wednesday after market close.

The hike wasn't particularly robust; nevertheless, it showed the company is concerned about how dividend investors perceive it. Let's dig into the latest payout improvement and see whether that, along with the company's recent performance and future potential, makes the stock a buy.

Extending the streak

Starbucks announced that dividend raise on Oct. 7, stating that its board of directors approved a $0.01 increase in the quarterly common stock payout to $0.63 per share. This puts the annual amount at $2.52 per share, yielding just shy of 2.5%.

This keeps Starbucks' increasingly lengthy annual dividend raise streak alive, as the company has lifted the payout every year since initiating it in 2010.

And while a $0.01-per-share increase won't make income investors pounce on the stock, it'll enhance management's reputation for keeping shareholders happy. After all, with the move, Starbucks' annual dividend spend on its outstanding shares will reach nearly $2.9 billion.

Besides, Starbucks prefers to allocate capital for other purposes. In its dividend raise announcement, the company quoted CFO Cathy Smith as saying the raise "reflects our continued confidence and belief that disciplined execution of our Back to Starbucks strategy will drive sustainable long-term growth and value creation."

China changes

Despite the hopeful words, Starbucks saw a top-line slump in its fiscal third quarter. There's a big asterisk next to that fact, however, as the company divested a majority stake in its China business by forming a 60/40 licensed joint venture led by the domestic investment management firm Boyu Capital.

That means overall revenue from the sprawling Asian nation has declined, but what it earns today boosts the company's profit margins.

The China shift was a key reason why Starbucks posted that overall revenue decrease (of slightly over 1% year over year to $9.3 billion). A more revealing fundamental was global comparable store sales, which raced nearly 8% higher, crushing the 6.2% from a mere one quarter earlier.

Breaking that down further, North America comps were 8.1%, and international comps were 5.7%. With Starbucks no longer weighed down by operating the China cafes directly, that percentage surged -- it was more than double the second-quarter international figure of 2.6%.

Profitability leaped in the quarter; however, the headline net income number was skewed by that sale of the China stake. To a lesser extent, federal tariff refunds also added to the number, which, under generally accepted accounting principles (GAAP), surged 87% to almost $1.05 billion. Yet a more revealing line item, operating income, improved by 5% to $980 million.

From burritos to lattes

Starbucks likes to attribute such improvements to the aforementioned Back to Starbucks -- the strategy captained by its star CEO, ex-Chipotle Mexican Grill chief Brian Niccol. He and his team hatched the initiative after he joined the company in 2024; it focuses on making the cafes more welcoming and tightening order fulfillment and inventory management, among other adjustments.

While I tend to take grand-sounding corporate initiatives with a grain of salt, I feel that there's some truth in the company's assertion.

I go to Starbucks cafes semi-regularly, and I've noticed more than a few of these changes; I do get my java quicker, it seems, and there's less "counter congestion" of food/beverage items at the pickup table thanks to changes in the ordering system.

So all this, plus the satisfying continuation of the company's streak of dividend raises, makes Starbucks a buy, right?

I wouldn't go that far. Yes, those improvements are tangible and feel as if they might be long-lasting, if not permanent, and the fundamentals are growing impressively of late. Yet if we look at the stock's valuations, they're high.

Forward P/E is over 32, making Starbucks' equity priced more like a growth stock, and I don't feel it's that dynamic a company, even with those recent (and solid) year-over-year improvements. I believe many investors are captivated by the turnaround story, but this is a company regaining its former strength and power, not one poised to vault ahead for years to come.

Yes, it's always pleasant when one of our companies raises a dividend. For me, though, Starbucks' latest hike isn't dramatic enough to buy the stock. I'd say the same for its recent upward lift in the fundamentals, as impressive as it has been.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short December 2026 $38 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.