Starbucks Corporation (NASDAQ:SBUX) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Starbucks' shares before the 9th of February to receive the dividend, which will be paid on the 24th of February.
The company's upcoming dividend is US$0.53 a share, following on from the last 12 months, when the company distributed a total of US$2.12 per share to shareholders. Calculating the last year's worth of payments shows that Starbucks has a trailing yield of 2.0% on the current share price of $104.3. If you buy this business for its dividend, you should have an idea of whether Starbucks's dividend is reliable and sustainable. So we need to investigate whether Starbucks can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Starbucks
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Starbucks is paying out an acceptable 70% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 89% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Starbucks, with earnings per share up 7.5% on average over the last five years. Decent historical earnings per share growth suggests Starbucks has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Starbucks has lifted its dividend by approximately 20% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Has Starbucks got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and Starbucks paid out a bit over half of its earnings and free cash flow last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
With that being said, if dividends aren't your biggest concern with Starbucks, you should know about the other risks facing this business. For example, we've found 5 warning signs for Starbucks (2 make us uncomfortable!) that deserve your attention before investing in the shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.