The board of Starbucks Corporation (NASDAQ:SBUX) has announced that the dividend on 24th of November will be increased to $0.57, which will be 7.5% higher than last year's payment of $0.53 which covered the same period. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.
Starbucks' Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. The last dividend was quite comfortably covered by Starbucks' earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.
Looking forward, earnings per share is forecast to rise by 67.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.
Starbucks Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.42 in 2013 to the most recent total annual payment of $2.12. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Starbucks May Find It Hard To Grow The Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Starbucks hasn't seen much change in its earnings per share over the last five years. Starbucks is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On Starbucks' Dividend
Overall, we always like to see the dividend being raised, but we don't think Starbucks will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Starbucks (2 are concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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