Last December, I wrote that Starbucks' (NASDAQ:SBUX) dividend could double in four years. After announcing its most recent annual dividend increase earlier this month, the coffee giant is on track with this target. Starbucks increased its dividend by 20%.

With Starbucks' most recent dividend increase fresh in the rearview mirror, it's a good time to take a look at the coffee company's dividend, as well as check in on the underlying metrics in Starbucks' business that support this dividend. Spoiler alert: Its dividend prospects remain tasty.

A barista holding Starbucks' 2017 Holiday cup

Image source: Starbucks.

Starbucks' dividend growth

Announced alongside its fourth-quarter results on Nov. 2, Starbucks said its board approved a 20% increase to its quarterly dividend, raising it from $0.25 to $0.30, or $1.20 on an annual basis. Its first $0.30 quarterly dividend is payable on Dec. 1 to shareholders of record on Nov 16.

Starbucks' 20% dividend increase puts the spotlight on the company's long track record of consistently strong divided hikes. Dividends over the last six years have increased at an average rate of 24% annually. Further, in the last three years alone, Starbucks' quarterly dividend has nearly doubled, rising from $0.16 to $0.30.

Of course, the downside to Starbucks' dividend is that its dividend yield isn't as meaty as some more established restaurant companies. Starbucks 2.1% dividend yield, for instance, is well below McDonald's (NYSE:MCD) dividend yield of 2.4%.

But Starbucks arguably more than makes up for its lower dividend yield with its much more rapid dividend growth. McDonald's most recent dividend increase was just 7% -- significantly below Starbucks' 20% increase.

What's next for Starbucks' dividend?

While Starbucks' dividend increase this year was below the company's 25% dividend increase last year, there's plenty of reason to expect Starbucks to keep increasing its dividend at strong double-digit rates in the coming years.

Here are several reasons Starbucks is a good bet for further dividend growth:

  1. A commitment to returning cash to shareholders: Starbucks has proven its appetite for dividends with its ongoing efforts to return cash to shareholders. In fact, in fiscal 2017, Starbucks returned a record $2.5 billion to shareholders through dividends and share repurchases. Looking ahead, Starbucks is committed to returning significantly more cash to shareholders. In its fourth-quarter earnings release, Starbucks said it approved a commitment to return $15 billion to shareholders over the next three years through dividends and share repurchases. Spread over this three-year period, this amounts to a whopping $5 billion per year -- more than double the record $2.5 billion Starbucks dished out to shareholders this year.
  2. A low payout ratio: Starbucks has a fairly low payout ratio of 48%, leaving plenty of room for more dividend increases in the coming years. Once again showing how investors shouldn't view a company's dividend yield in isolation from its dividend's growth potential, Starbucks beats McDonald's on this metric, too. McDonald's has a payout ratio of 54% -- still low, but leaving less room for increases in the future.
  3. Projections for strong earnings growth: Last but not least, Starbucks recently updated its long-term outlook for its annualized earnings-per-share (EPS) growth over the next five years, saying it expects non-GAAP EPS to increase annually at a rate of 12% or higher -- strong enough to easily support double-digit year-over-year increases in dividends in the coming years.

Starbucks stock remains a great bet for dividend investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.