Invest in Coffee Stocks

Last Updated on November 23, 2023 by Prakash Kolli

Coffee stocks have been lucrative for investors. For instance, Starbucks (SBUX) has made millionaires since its initial public offering (IPO). The company had an IPO in 1992, and $10,000 invested then is worth more than $4 million now.

However, Starbucks is not the only choice for investors. Today, there are many coffee stocks to choose from, including retailers, processors, and distributors. A few companies are focused mainly on coffee, like Starbucks. Other coffee companies have a business segment in a more extensive product portfolio, like Keurig Dr. Pepper (KDP). Finally, some companies produce and sell coffee as part of a giant conglomerate, like Nestle (NSRGY). 

There is room for many companies in this $100 billion industry driven by consumers drinking 500+ billion cups of coffee annually. A handful of publicly traded companies make excellent investments at the appropriate valuation. In addition, there are several smaller coffee stocks. However, investors should be wary of many of these since they are often micro-caps with more significant risks and volatility. Lastly, there are many, many privately-held coffee companies. For instance, Dunkin’ Donuts is now owned by a private equity firm. 

In this article, we discuss publicly traded coffee stocks paying dividends. A list of stocks with financial data and a dividend calendar are available at the end of the article.

Coffee Stocks with Dividends

Starbucks

Starbucks was founded in 1971 in Seattle, WA, as a coffee bean store. Howard Schultz bought the company in 1987, rebranded his stores, and started to expand. Starbucks had an IPO in 1992. Today, Starbucks has about 38,038 stores and operates globally. Approximately 61% of stores are in the United States and China, and Starbucks operates about 51% of the stores, and 49% are licensed.

Today, Starbucks sells coffee beans, ground coffee, coffee, coffee-based drinks, other drinks, pastries, breakfast food, and lunch food at its retail stores and licensed stores. The company also sells coffee beans and ground coffee at grocery stores through a partnership with Nestlé.

Significant brands are Starbucks, Teavana, Seattle’s Best Coffee, Evolution Fresh, Ethos, Starbucks Reserve, and Principi. According to Interbrans, in 2023, the Starbucks brand is the No. 48 most valuable global brand.

Total revenue was around $33,975 million in the fiscal year 2023 and in the last twelve months (LTM).

Starbucks sells the most coffee in the U.S. and is thus the pre-eminent coffee stock. The company took an everyday drink and made it trendy and desirable. The combination of higher quality and attractive retail outlets allowed Starbucks to charge a premium for its coffee.

Starbucks paid its first dividend in 2010, and it has been raised yearly, making the stock a Dividend Contender. According to Portfolio Insight*, The forward dividend rate is $2.28 per share, giving a forward dividend yield of about 2.2%. This yield is above the 5-year average dividend yield of 1.98%. In addition, the dividend growth rate has been 13.8% in the past 5-years and 18.7% in the past decade.

The dividend is relatively safe, too, with a payout ratio of approximately 68%. Free cash flow (FCF) was $3,675 million and more than covers the dividend requirement of $2,432 million. These amounts give a dividend-to-FCF ratio of ~66%. Starbucks has a BBB+ / Baa1 lower-medium investment-grade credit rating.

Starbucks is trading at a calculated forward price-to-earnings (P/E) ratio of ~25X, below its average range in the past 10-years.

Keurig Dr. Pepper

Keurig Dr. Pepper is not as well-known as Starbucks as a coffee stock. However, it is a significant player in the single-serve market. The company sells the Keurig single-serve coffee machines and K-Cup pods, which are very popular. Besides the two coffee brands of Keurig and Green Mountain, KDP owns Core, Dr. Pepper, Sunkist, Canada Dry, Bai, 7UP, Snapple Mott’s, Hawaiian Punch, and several others. It also manufactures K-Cup pods for other brands.

KDP resulted from the acquisition of Dr. Pepper Snapple by Keurig Green Mountain, owned by JAB Holdings, for almost $20 billion in 2018. The new company became the third largest non-alcoholic beverage company in the US. Privately held JAB Holdings owns ~33.4%, and Mondelez (MDZ) owns ~5.3%. JAB Holdings also owns Peet’s Coffee, Caribou Coffee, Panera, a few other food chains that sell coffee, and the international rights to Maxwell House. However, the firm is not publicly traded on U.S. stock exchanges, and thus cannot be considered a coffee stock to buy.

Total revenue was around $14,057 million in 2022 and $14,750 in the last twelve months.

KDP does not have a long dividend history, although some of its predecessor companies do. The company has paid a dividend since 2019. The forward dividend yield is now ~2.65% based on a dividend rate of $0.763 per share. The 3-year dividend growth rate is about8.3%.

The dividend safety metrics are conservative, with a payout ratio of approximately 45%. in 2022, free cash flow of ~$2,484 million was greater than the annual dividend outflow of $1,080 million, giving a dividend-to-FCF ratio of ~43%. KDP has a Baa1 lower-medium investment-grade credit rating.

KDP is trading at a forward P/E ratio of ~18.2X, below its average in the past 3-years.

McDonald’s

The following coffee stock we discuss is McDonald’s (MCD). The company is well-known for its burgers and nuggets, but it is a major player in coffee. The Golden Arches reportedly sells more than one billion cups of coffee annually. Additionally, the company owns McCafé, a chain of coffee houses with more than 1,300 retail locations globally. 

Besides McCafé, the company sells coffee in its 40,000+ McDonald’s stores worldwide. According to Interbrand, the McDonald’s brand is the ninth most valuable brand globally. The combination of McCafé and McDonald’s stores means the company is a significant coffee stock.

Total revenue was around $23,183 million in 2022 and $25,014 in the last twelve months. Systemwide sales were $116 billion in 2022. Approximately 60% of revenue is from franchise royalty fees and lease payments. McDonald’s owns 55% of the real estate and 80% of the buildings in its franchise system.

McDonald’s is known as a Dividend Aristocrat and Dividend Champion. The company has raised the dividend for 48 consecutive years. The forward dividend rate is $6.68 per share, and the dividend yield is 2.37%. This yield is above the 5-year average dividend yield of 2.26%. The dividend growth rate has been 8.128% in the past 5-years and 7.0% in the past decade.

The dividend is safe, too, with a payout ratio of approximately 56%. Free cash flow was $7,195 million and more than covers the dividend requirement of $4,436 million. These values give a dividend-to-FCF ratio of ~62%. McDonald’s has a BBB+ / Baa1 lower-medium investment-grade credit rating.

McDonald’s is trading at a forward P/E ratio of ~23.9X, within its average range in the past 10-years.

J. M. Smucker

We now switch focus to a company known for its jams and jellies, J. M. Smucker (SJM). The 100+ year-old company still sells jams and jellies but has transformed itself into a seller of pet food and snacks, and coffee through a series of acquisitions and divestments. The remainder of total revenue is from peanut butter, fruit spreads, and frozen hand-held foods.

Major coffee brands include Folgers, Café Bustelo, Dunkin’ Donuts, and 1850. Smuckers also owns Jif, Smucker’s, Crisco, Smucker’s Uncrustables, Meow Mix, Kibbles ‘n Bits, 9Lives, Nature’s Recipe, Milk-Bone, Pup-Peroni, Rachael Ray Nutrish, Natural Balance, Robin Hood, and Five Roses.

Total revenue was around $8,529 million in fiscal year 2022 and about $8,461 million in the last twelve months.

Smucker is another dividend growth stock on this list of coffee stocks. The company has raised its dividend for 26 years, making it a Dividend Champion. The forward dividend rate is $4.24 per share, and the computed dividend yield is 3.74%. The dividend growth rate has been 5.61% in the past 5-years and 7.23% in the past decade.

The dividend is safe, too, with a payout ratio of nearly 45%. Free cash flow was about $912 million and more than covers the annual dividend payment of $430 million. These values give a dividend-to-FCF ratio of ~47%. Smucker has a BBB / Baa2 lower-medium investment-grade credit rating. Furthermore, Portfolio Insight’s dividend quality grade is an ‘A+.’

Smucker is trading at a forward P/E ratio of ~12.2X, well below its average range in the past five and ten years.

Restaurant Brands International

The next coffee stock is Restaurant Brands International (QSR). The company results from several acquisitions and mergers orchestrated by the private equity firm 3G Capital, which owns 30%. Today, the company owns Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs. QSR has 29,000+ locations in 120+ countries.

It is the Tim Hortons brand that makes QSR a coffee stock. The brand is omnipresent in Canada and sells coffee, donuts, and fast food. Tim Hortons sells even more coffee than Starbucks in Canada and has a 50%+ market share of branded coffee.

Total revenue was around $6,505 million in 2022 and $6,891 in the last twelve months.

QSR has an excellent forward dividend yield of ~3.13%. The forward dividend rate is $2.20 per share. The dividend has been increased for 11 straight years, making the stock a Dividend Contender. The dividend growth rate has been 22.6% in the past 5-years and about 49% in the trailing ten years.

The dividend safety metrics are concerning, though. First, the payout ratio is high at about 69%. However, FCF was about $1,222 million and covers the dividend payment of $984 million, with a dividend-to-FCF ratio of ~80%, but the percentage is more than our target value.

Investors should be cautious of the significant amount of debt on the balance sheet with a 5.63X leverage ratio and low interest coverage. QSR has a BB non-investment grade credit rating.

QSR is trading at a forward P/E ratio of ~21.9X, within its average range in the past 10-years.

Kraft Heinz

Kraft Heinz is a company known by almost every consumer for cheese, ketchup, and mustard. In addition, Kraft Heinz is a coffee stock. Kraft Heinz owns the US rights to Maxwell House. JAB Holdings, another coffee stock, has international rights to Maxwell House. The company also owns Gevalia and Ethical Bean Coffee.

Besides coffee, Kraft Heinz owns many well-known brands, including Kraft, Heinz, Oscar Meyer, Velveeta, Philadelphia, Lunchables, Cracker Barrel, Jell-O, Kool-Aid, etc.

Interestingly, Kraft Heinz is the second company controlled by 3G Capital on this list. It owns about 34.5% of the firm. However, according to Warren Buffett’s annual shareholder letter, Berkshire Hathaway (BRK.A, BRK.B) owns about 27% of the Kraft Heinz carried at a $13.1 billion valuation.

Total revenue was around $26,485 million in 2022 and $27,161 million in the past twelve months.

Kraft Heinz has the highest dividend yield of the coffee stocks at 4.61%. However, the forward dividend rate is $1.60 per share, held constant since 2019 after being cut from $2.50 per share. This fact makes the dividend growth rate negative for the trailing 5-years and flat for the past three years.

However, the lower dividend rate has improved the dividend safety metrics. The payout ratio is now about 58%. The FCF was about $2,509 million and covers the annual dividend payment of $1,964 million, with a dividend-to-FCF ratio of roughly 78%, but the percentage is high. 

The dividend was cut to allow Kraft Heinz to deleverage. The total debt has fallen, but the leverage ratio is still ~2.4X, and interest coverage is low. The company has a BBB-/Baa3 lower-medium investment-grade credit rating, one notch above non-investment grade.

Kraft Heinz is trading at a forward P/E ratio of ~11.7X, above its average range in the past five and ten years.

Nestlé S.A. ADR

The last coffee stock we discuss is Nestlé S.A. ADR (NSRGY), the European food giant. The company is the largest coffee stock by revenue and market capitalization on this list. Nestlé operates in 189 countries.

Nestlé was founded in 1866. Today, it is the largest global consumer staples company in the world. The company is known for its candy brands, baby foods, bottled water, cereals, ice cream, etc. The conglomerate also owns about 24% of L’Oréal.

In addition, the company is a major player in coffee, owning Nescafé, Nespresso, Dolce Gusto, Starbucks (licensed for sale at grocery stores and other retail outlets), and Blue Bottle. Nescafé has an 80-year history, and Nespresso is single-serve coffee.

Total revenue was around $94,780 million in 2022 and $95,498 million in the last twelve months.

Nestlé’s trailing dividend rate is $3.31 per share giving a dividend yield of 2.94%. Like many European companies, Nestlé pays a dividend annually and has done so since at least 1959. The dividend has trended up with time, but not consistently. Also, foreign exchange rates affect the U.S. payout.

The dividend payout ratio is approximately 80%, but it fluctuates yearly. The FCF was $8,329 million and covered the dividend requirement of $7,829 million. Nestlé’s balance sheet is conservative with an AA- / Aa2 high-grade investment credit rating.

Nestlé is trading at a forward P/E ratio of ~20.4X, below its average range in the past 10-years. According to StockRover*, the stock has a low beta of 0.42 relative to the S&P 500 Index, making it a good counterweight.

Final Thoughts on Invest in Coffee Stocks

Coffee stocks have proven lucrative to many investors. Both Starbucks and McDonald’s are leaders in retail sales and return cash to investors and increase their dividends annually. Investors should also take a deeper look at KDP and Nestlé; both are market leaders in the single-serve market. Other coffee stocks are somewhat less desirable because of poor safety metrics or earlier dividend cuts, but could be a good buy at the proper valuation and lower total debt.

Disclosure: Long SBUX, KDP, and MCD

List of Coffee Stocks

Stock Rover* and Portfolio Insight* were used to create this table.

Ticker	Company	No. Years	Dividend Yield	Dividend 10-Year Avg (%)	Payout Ratio	Price / Earnings	Cap ($M USD)
KDP	Keurig Dr Pepper	3	2.70%	-5.50%	59.10%	23.6	$45,320
KHC	Kraft Heinz	0	4.60%	-	65.60%	14.3	$42,536
MCD	McDonald's	48	2.40%	7.00%	53.20%	24.9	$204,495
NSRGY	Nestle	0	2.90%	4.30%	81.90%	27.6	$302,262
QSR	Restaurant Brands Intl	11	3.10%	-	74.50%	24.3	$22,062
SBUX	Starbucks	13	2.20%	17.60%	58.90%	28.9	$117,580
SJM	JM Smucker	26	3.70%	6.20%	-	-	$11,884

Dividend Calendar for Coffee Stocks

Stock Rover* was used for creating this table.

Ticker	Company	Ex-Dividend Date	Div. Record Date	Dividend Payment Date	Dividend Frequency	Next Div. Payment Per Share	Dividend Per Share
KDP	Keurig Dr Pepper	9/28/23	9/29/23	10/13/23	4	$0.22	$0.86
KHC	Kraft Heinz	11/30/23	12/1/23	12/29/23	4	$0.40	$1.60
MCD	McDonald's	11/30/23	12/1/23	12/15/23	4	$1.67	$6.68
NSRGY	Nestle	4/24/23	4/25/23	6/8/23	1	$3.31	$3.31
QSR	Restaurant Brands Intl	12/20/23	12/21/23	1/4/24	4	$0.55	$2.20
SBUX	Starbucks	8/10/23	8/11/23	8/25/23	4	$0.53	$2.28
SJM	JM Smucker	11/16/23	11/17/23	12/1/23	4	$1.06	$4.24

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