Starbucks to pay first dividend, expands buyback

Starbucks to pay first dividend, expands buyback »Play Video
SEATTLE -- Starbucks' CEO proclaimed its once-stumbling brand is back in business after two years of layoffs and store closings, while the coffee giant issued its first-ever dividend for investors on Wednesday.

Speaking in front of thousands of shareholders and employees at the company's annual meeting in Seattle, CEO Howard Schultz said the brand's ambitious turnaround effort sliced $580 million from its expenses and the turnaround is now taking hold.

"It's been a long two years," he said. "But the company is extremely healthy and robust."

Earlier in the day, Starbucks announced the dividend, pledging to return 10 cents per share to investors and ultimately boosting that payment to as much as 40 percent of its annual profit. It also will expand its effort to buy back its own shares.

Companies pay dividends to share profits directly with shareholders, and are often a sign that a company has matured beyond the fast-growth stage.

"Both the dividend and share repurchase programs are strong signals of the health of the company," said Chief Financial Officer Troy Alstead.

Hit by the recession and overwhelmed by its own rapid expansion, Starbucks began a retreat more than two years ago. It brought back Schultz, who helped build the company, to lead the day-to-day operations. And it shut hundreds of locations and laid off thousands of workers to scale back its spending.

"Growth was covering up mistakes," Schultz said. "But we cleansed ourselves of that and we began to understand that we not only had to fix the mistakes but also start righting the ship. ... We realized we had to fundamentally transform the company by taking out cost."

At the same time, the company tried to make over its image, emphasizing some of its cheaper drinks and trying to add more local flair to some of its cookie-cutter locations as it also had to fight off increasing competition from independent coffee houses and big chains alike, including a faceoff with McDonald's Corp., which muscled in on Starbucks' turf with a successful line of coffee drinks.

The changes seem to be working. In 2009, Starbucks' profit climbed 24 percent and in the past year its share price has more than doubled. The company also saw a yearly increase in the number of customers who visited its locations during its most recent quarter.

Starbucks officials said the dividend will be first paid in cash to investors. It will be paid April 23 to shareholders who own stock April 7.

Morningstar analyst R.J. Hottovy said Wednesday's announcement shows just how far the company has come.

"They've done the cost-containment side," he said. "I think it just shows the next evolution of Starbucks and that they're able to fund their growth initiatives while still returning quite a bit to shareholders."

Starbucks shares hit $26 per share Wednesday - a level not seen since November 2007.

Anti-Gun Activists Spread Message Outside Meeting

But while the company's financial performance was the hot topic inside, the focus outside was on the bubbling debate on whether the company should allow customers to carry handguns inside their stores.

Gun-control activist Heidi Yewman, left, of the Brady Campaign, hands out fliers explaining Starbucks' policy that allows guns to be carried into the coffee shops.

Anti-gun activists showed up outside the meeting hoping to get investors to put pressure on the company to change its policy, allowing customers to openly carry handguns into its stores.

"This is about no guns," one activist said. "We don't want loaded guns in our Starbucks stores."

But investor Richard Harrigill said: "All Starbucks is saying is we're going to abide by the law. If it's good, it's good."

Washington is an open-carry state, meaning you're allowed to openly carry a gun in public without a permit. But businesses can make their own policy, banning guns from its stores.

Some stockholders would prefer the company to keep guns out.

"I'd be very scared to see somebody walk in with a gun," said Marlene Stachan. "I wouldn't know what they're going to do with it."

Starbucks, for its part, didn't ask for this controversy. Open-carry gun rights people started it when they showed up at Starbucks stores in California -- guns out in the open -- trying to get the public to be more tolerant of firearms. It launched an immediate counter offensive by gun opponents.