Starbucks Corporation (SBUX): One Of The Best Dividend Growth Stocks In The Market

This is important because free cash flow represents the excess money a company generates after paying for operations and investing in maintaining and growing its business. Warren Buffett describes FCF as “owner earnings,” and this is what ultimately funds a company’s capital return program, both buybacks and dividends.

Because Starbuck’s FCF payout ratio is so low, it should give income investors confidence that even during the next economic downturn when sales might slide a bit, Starbuck’s free cash flow should remain high enough to allow the company to continue paying and even growing the dividend.

Source: Simply Safe Dividends

Starbucks has only paid dividends for seven years, but the company’s strong fundamentals more than make up for its lack of dividend longevity when it comes to safety.

Starbucks’ growth has also been tremendous, providing plenty of money to fund and grow the dividend. Revenue and free cash flow per share have compounded by 12.3% and 14.3% per year, respectively, over the last five years.

Source: Simply Safe Dividends

The company also holds $2.3 billion in cash on its balance sheet, which more than doubles the amount of dividends paid last year. Starbucks’ balance sheet provides plenty of flexibility and shouldn’t hinder the company’s ability to continue paying safe, growing dividends.

Source: Simply Safe Dividends

Dividend Growth Analysis

Our Dividend Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

Starbuck’s Dividend Growth Score is 99, indicating very good chances that it will continue growing its payout at a rapid rate for years to come.

Starbucks began paying dividends in 2010 and has increased its payout every year since. The company’s dividend growth has been tremendous. For example, over the last three years, Starbucks’ dividend has grown by 23.6% per year. Most recently, Starbucks lifted its dividend by 25% in late 2015.

Source: Simply Safe Dividends