Starbucks (NASDAQ:SBUX) Has Announced That It Will Be Increasing Its Dividend To US$0.49

Starbucks Corporation's (NASDAQ:SBUX) dividend will be increasing to US$0.49 on 25th of February. Based on the announced payment, the dividend yield for the company will be 1.7%, which is fairly typical for the industry.

Check out our latest analysis for Starbucks

Starbucks' Earnings Easily Cover the Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Starbucks was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to fall by 3.9%. If the dividend continues along recent trends, we estimate the payout ratio could be 64%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Starbucks Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from US$0.26 in 2011 to the most recent annual payment of US$1.96. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see Starbucks has been growing its earnings per share at 13% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Starbucks Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Starbucks is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Starbucks (of which 1 is a bit unpleasant!) you should know about. We have also put together a list of global stocks with a solid dividend.

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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