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

By
Simply Wall St
Published
January 25, 2022
NasdaqGS:SBUX
Source: Shutterstock

Starbucks Corporation (NASDAQ:SBUX) has announced that it will be increasing its dividend on the 25th of February to US$0.49. This takes the annual payment to 1.9% of the current stock price, which is about average for the industry.

See our latest analysis for Starbucks

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 easily covered by Starbucks' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to fall by 4.6% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 64%, which is comfortable for the company to continue in the future.

historic-dividend
NasdaqGS:SBUX Historic Dividend January 25th 2022

Starbucks Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from US$0.26 to US$1.96. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. 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.

We Really Like Starbucks' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Starbucks you should be aware of, and 1 of them shouldn't be ignored. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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