Is Starbucks (SBUX) the Best NASDAQ Dividend Stock to Buy?

We recently published a list of 15 Best NASDAQ Dividend Stocks To Buy. In this article, we are going to take a look at where Starbucks Corporation (NASDAQ:SBUX) stands against other best NASDAQ dividend stocks to buy.

The NASDAQ, heavily comprised of technology stocks, has been on a consistent upward trajectory for some years. In 2023, it experienced remarkable growth, marking its best performance since 2020 with an increase of over 43%. In 2024, the index continued to surpass market expectations with a 28.64% gain. This impressive performance is largely driven by the excitement surrounding artificial intelligence, which has significantly boosted major tech stocks and the broader market throughout 2023 and into this year. Analysts suggest that the NASDAQ could be the index of the future, as its companies have shown a strong ability to adapt to evolving market trends.

NASDAQ’s consistent outperformance can be observed over several years. According to a report by Invesco, since January 1, 2008, the Nasdaq-100 Index has delivered a cumulative total return of 750%, significantly outpacing the broader market’s 315% return. This success is largely attributed to the innovation driven by tech companies, which continues to attract investors. For instance, the technology sector in the broader market has achieved an annualized total return of 20.65% over the past decade, compared to 12.80% for the market. This leadership is understandable given the rapid adoption of technology in recent years. The Industry Classification Benchmark (ICB) noted that the Nasdaq-100 has approximately 55% exposure to the tech sector, in contrast to about 32% for the broader market.

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Tech companies are not only driving innovation but are also swiftly adjusting their dividend strategies. In 2024, many prominent tech firms began issuing dividends, significantly boosting the overall dividend pool. Although dividends are traditionally linked with value stocks rather than the high-growth companies fueling the AI surge, analysts suggest this shift broadens the appeal of these stocks to new investor groups while putting surplus cash to use. Typically, growth-focused companies prioritize reinvestment over returning earnings to shareholders. However, experts like Ted Mortonson from Baird argue that these dividend payments won’t undermine the companies’ future dominance. Here are some other comments from the analyst:

“I don’t view it as a problem. I view it as they’ve won. They’ve won the technology side. They’ve won on the business-model side, and they’re going to win on the Gen AI cycle.”

Overall dividends are becoming increasingly popular among investors, with many US companies either raising or maintaining their payouts. Howard Silverblatt, a Senior Index Analyst at S&P Dow Jones Indices, suggested that with an anticipated reduction in interest rates by the FOMC in 2025, coupled with record earnings forecasted for the fourth quarter of 2024 and the entire year of 2025, companies might allocate more funds towards substantial dividend hikes in the upcoming year. He further mentioned that February, traditionally the peak month for dividend increases, is expected to see even more significant growth as some firms may look to compensate for previous conservative strategies. In 2024, the large-cap companies in the broader market outperformed many others, achieving record levels in earnings, sales, and dividends. For 2025, a projected 8% rise in dividend payments is expected, up from a 6.4% increase in 2024.

Our Methodology

For this list, we scanned Insider Monkey’s database of 900 hedge funds as of the third quarter of 2024 and selected companies that are trading on the NASDAQ exchange and also pay dividends to shareholders. From that list, we picked 15 stocks with the highest number of hedge fund investors and ranked in ascending order of hedge funds’ sentiment toward them.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Is Starbucks Corporation (SBUX) The Best NASDAQ Dividend Stock To Buy?

A barista pouring freshly brewed coffee from an espresso machine to a cup in a bustling cafe.

Starbucks Corporation (NASDAQ:SBUX)

Number of Hedge Fund Holders: 76

Starbucks Corporation (NASDAQ:SBUX) ranks fourth on our list of the best NASDAQ dividend stocks. The American multinational chain of coffeehouses specializes in a wide range of coffee beverages. It delivered mixed earnings for fiscal Q4 2024, with revenue totaling $9.07 billion, reflecting a 3.2% decline from the previous year. However, its cash flow remained solid, with $6 billion in operating cash. The company also expanded its presence, adding 722 new stores, bringing the total to 40,199 locations. Of these, 52% are company-operated, while 48% are managed under licensing agreements.

Despite the economy, especially consumer spending, showing resilience amid ongoing uncertainty, Starbucks Corporation (NASDAQ:SBUX) has struggled to achieve similar success. The highly competitive and fragmented retail coffee market poses significant challenges. In the US, the top five coffee chains control less than half of the market, offering consumers plenty of alternatives. With no significant switching barriers, customers can easily choose other options, leaving the company with little margin for error—an issue that seems to be affecting its performance. The stock has surged by just 0.5% in the past 12 months.

Starbucks Corporation (NASDAQ:SBUX)’s dividend keeps it in a safe spot among investors. The company holds a 14-year track record of consistent dividend growth and currently offers a quarterly dividend of $0.61 per share. Its dividend yield on January 15 came in at 2.62%.

Invesco Distributors, Inc. highlighted Starbucks Corporation (NASDAQ:SBUX) in its Q3 2024 investor letter. Here is what the firm has to say:

“Starbucks Corporation (NASDAQ:SBUX): The coffee retailer has struggled with China’s economic softness, declining sales and weaker US store traffic that have hampered revenues and profit margins. However, we believe the company has several positive, long-term catalysts, including strong growth in store count, better labor relations, improving productivity from labor, technology and innovation, and easier future earnings comparisons. We believed a management change was imminent, and shortly after we purchased the stock, Starbucks named a new CEO, which was seemingly greeted enthusiastically by investors.”

The number of hedge funds tracked by Insider Monkey holding stakes in Starbucks Corporation (NASDAQ:SBUX) grew to 76 in Q3 2024, from 70 in the previous quarter. These stakes have a consolidated value of over $3.2 billion. With over 11.7 million shares, Fisher Asset Management was the company’s leading stakeholder in Q3.

Overall, SBUX ranks 4th on our list of best NASDAQ dividend stocks to buy. While we acknowledge the potential for SBUX to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SBUX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. 

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Disclosure: None. This article is originally published at Insider Monkey.