The leaner Starbucks Corp that emerged after months of slashing costs is dripping with enough cash to make its first-ever dividend or a share buyback likely, analysts and investors told Reuters.

William Blair & Co analyst Sharon Zackfia said the coffee chain is expected to announce a dividend or possibly a share repurchase program at its annual shareholder meeting in Seattle on Wednesday.

They have a lot of cash, she said. An annual meeting is as good of time as any to do that.

Starbucks closed nearly 900 stores and squeezed out more than a half a billion dollars in operating costs in a massive restructuring following the return of Howard Schultz as chief executive in January 2008.

The company, which had expanded rapidly during the last economic boom, now expects to generate free cash flow of around $1 billion for the current fiscal year ending September 2010.

The company declined to comment for this story, saying it does not comment on market speculation.

Bill Smead, portfolio manager of the Smead Value Fund in Seattle, put the chance of the company declaring a dividend at 50 percent to 70 percent.

He estimates the likelihood of a buyback announcement at 20 percent.

We would love to have them pay a dividend and think it's appropriate... If it doesn't happen now, it's inevitable because Starbucks is becoming a mature growth company, Smead said.

Shares in Starbucks traded at about $25 on Tuesday, more than double their 52-week low of $10.74 a little over a year ago. The shares have gained more than 35 percent since Schultz returned to turn the business around, compared with nearly a 20 percent decline in the Standard & Poor's 500 Index. <.SPX>

STARBUCKS WEIGHS BEST USE OF CASH

Starbucks Chief Financial Officer Troy Alstead said in January that the company was evaluating the best way to use its excess cash and expected to wrap up that assessment in the following months.

He added that cash flow not earmarked for investment in the business would be available to return to shareholders.

A better operating environment and slight pick up in consumer confidence also is helping the chain known for its pricey cappuccinos and lattes, even as it faces greater competition on coffee sales from the likes of McDonald's Corp and Dunkin Donuts.

In the most recent quarter, Starbucks said U.S. same-store sales rose 4 percent -- the first time in two years that quarterly sales at established domestic outlets posted gains.

Higher prices on some drinks and the company's new Via instant coffee helped fuel the rise, though the Via sales did not translate into added profits as Starbucks spent aggressively on promoting the product.

Same-store sales also got a boost from store closures because sales were spread among fewer locations.

Meanwhile, portfolio manager Smead thinks deals struck between Starbucks' Seattle's Best Coffee and fast-food chains like Subway and Burger King could add to earnings in the nearer-term.

(Reporting by Lisa Baertlein; Editing by Michele Gershberg and Tim Dobbyn)

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