Starbucks Corporation (NASDAQ:SBUX) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of November to $0.53. This will take the annual payment to 2.5% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for Starbucks
Starbucks' Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Starbucks was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
Over the next year, EPS is forecast to expand by 21.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range.
Starbucks Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was $0.34, compared to the most recent full-year payment of $2.12. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Starbucks has seen EPS rising for the last five years, at 13% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
Our Thoughts On Starbucks' Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. On the plus side, the dividend looks sustainable by most measures but it is let down by the lack of cash flows. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Starbucks has 3 warning signs (and 2 which are concerning) we think you should know about. Is Starbucks not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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