Green Mountain Joins Dividend Ranks: Is That Good?


When a growth stock begins paying a dividend, is that good news or bad news?

In recent years, strong growth stocks -- such asApple ( AAPL ) andGameStop ( GME ) in 2012, andExpedia ( EXPE ) andStarbucks ( SBUX ) in 2010 -- began paying dividends for the first time in history, or in the case of Apple, the first time in almost two decades.

Green Mountain Coffee Roasters ( GMCR ) became the latest to join the club. The company announced Nov. 19 that it would begin paying a quarterly dividend. The quarterly payout of 25 cents a share will be paid Feb. 14 to holders of record Jan. 17. The annual yield is 1.5%.

The board also authorized a $1 billion buyback of shares.

Some growth investors greet a dividend initiation with groans. They regard it as a sign that a star stock is heading for the investment world's equivalent of golf's senior tour.

Yet, the four stocks mentioned above mostly have done well since launching quarterly dividends. GameStop, Expedia and Starbucks have outperformed the major indexes by wide margins. Only Apple has lagged since becoming a dividend payer.

Green Mountain Coffee's price action has been a little wild the past few years -- not the sort of calm price action income investors like to see in core positions.

However, not every stock in an income portfolio needs to fit the core profile. A few jalapenos can add an edge to a dull sandwich.

Green Mountain's three- and five-year Earnings Stability Factors are 13 and 16 on a scale that runs from 0 (calm) to 99 (wild).

The company recently reported quarterly results that beat views. EPS rose 39% vs. 17% expected. Sales popped 11%, but the year-ago quarter reflected 14 weeks rather than 13. Adjusted for a like comparison, sales rose 16%.

Fidelity Magellan opened a position in Q3, while Contrafund stepped up its exposure.

Shorts are also active. As of Nov. 15, shares shorted amounted to about 10 days of trading.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: AAPL , EXPE , GMCR , GME , SBUX

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