Does Starbucks Corporation (NASDAQ:SBUX) Have A Place In Your Portfolio?
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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Starbucks Corporation (NASDAQ:SBUX) has paid dividends to shareholders, and these days it yields 2.1%. Let’s dig deeper into whether Starbucks should have a place in your portfolio.
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:
Is it paying an annual yield above 75% of dividend payers?
Has it paid dividend every year without dramatically reducing payout in the past?
Has dividend per share amount increased over the past?
Is its earnings sufficient to payout dividend at the current rate?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Starbucks fare?
The current trailing twelve-month payout ratio for the stock is 61%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 55% which, assuming the share price stays the same, leads to a dividend yield of 2.4%. Moreover, EPS should increase to $2.59.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Starbucks as a dividend investment. It has only been consistently paying dividends for 9 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 2.1%, which is on the low-side for Hospitality stocks.
Next Steps:
Taking all the above into account, Starbucks is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. 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. There are three pertinent factors you should further research:
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.
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.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
