Please ensure Javascript is enabled for purposes of website accessibility

Starbucks' Dividend Could Double in Just 5 Years

By Daniel Sparks - Updated Apr 11, 2019 at 11:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The coffee giant offers investors both a solid dividend yield and strong dividend growth prospects.

Check out the latest Starbucks earnings call transcript.

In 2018, Starbucks (SBUX 0.64%) gave investors more reason than ever to bet on the company's dividend. Not only did Starbucks increase the amount of cash it has authorized to return to shareholders through repurchases and dividends by $10 billion, but the company increased its quarterly dividend by 20% -- and it did it one quarter earlier than usual.

Management's obvious commitment to dividend growth combined with the company's overall healthy business makes the coffee giant a great dividend stock. Indeed, the company's dividend could easily double in as little as five years, making Starbucks stock a way for investors to get their hands on both a meaningful dividend yield and strong dividend growth potential.

A woman using Starbucks' mobile loyalty program

Image source: Starbucks.

A strong dividend

Investors who buy Starbucks today get a solid dividend.

Dividend growth has been particularly impressive. Starbucks' most recent 20% dividend increase wasn't the company's only sharp dividend increase in recent years. Indeed, the company's quarterly dividend more than doubled in just three years, rising from $0.16 in 2015 to $0.36 in 2018.

Starbucks' current quarterly dividend of $0.36 comes out to $1.44 annually, giving the coffee company a meaningful dividend yield of 2.3%. By comparison, the average dividend yield of stocks in the S&P 500 is 2.2%. 

Dividend growth prospects

Looking ahead, more strong dividend growth is likely. This is especially evident by Starbucks' low payout ratio, or the company's dividend payments as a percentage of its earnings. Starbucks has a payout ratio of just 39%, indicating there is significant room for further increases in the coming years.

A businessman pointing out a growth trend in a bar chart

Image source: Getty Images.

Also supporting the case for further increases in Starbucks' dividend is the company's strong bottom-line growth recently. Starbucks' non-GAAP earnings per share rose 13% year over year in Q4 and 17% for the full year of fiscal 2018. Over the coming years, management expects that its non-GAAP earnings per share can continue growing at double-digit rates. Strong earnings growth, of course, will help support further dividend growth.

Considering Starbucks' recent dividend growth, its low payout ratio, and management's expectation for double-digit annualized earnings-per-share growth over the long term, it's reasonable to expect Starbucks' dividend to compound at an average rate of around 15% annually over the next five years, helping it double during this period.

While it's always possible that Starbucks' dividend growth in the coming years falls short of a 15% compound average annualized growth rate, it's also possible that it exceeds this rate. After all, Starbucks' dividend has increased at an average rate of 26% over the past five years. 

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
$87.83 (0.64%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.