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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 8 years, Starbucks Corporation (NASDAQ:SBUX) has returned an average of 2.00% per year to shareholders in terms of dividend yield. Does Starbucks tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View our latest analysis for Starbucks
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Is their annual yield among the top 25% of dividend payers?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has it increased its dividend per share amount over the past?
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Does earnings amply cover its dividend payments?
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Will it be able to continue to payout at the current rate in the future?
How well does Starbucks fit our criteria?
The current trailing twelve-month payout ratio for the stock is 36.15%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 49.60%, leading to a dividend yield of around 2.42%. Furthermore, EPS should increase to $3.13. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Starbucks as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. In terms of its peers, Starbucks produces a yield of 2.07%, which is on the low-side for Hospitality stocks.
Next Steps:
Whilst there are few things you may like about Starbucks from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three important aspects you should look at:
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Future Outlook: What are well-informed industry analysts predicting for SBUX’s future growth? Take a look at our free research report of analyst consensus for SBUX’s outlook.
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Valuation: What is SBUX worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SBUX is currently mispriced by the market.
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Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.