Who doesn’t like a juicy dividend yield between 3% and 4%? I know I sure do. And while a number of companies — like The Coca-Cola Co (NYSE:KO) and Procter & Gamble (NYSE:PG) — sport such a yield, the valuations surely don’t appear to be a bargain. I’m not here to argue the merits of these stocks though. Instead, I’m more excited by a trio like Visa Inc (NYSE:V), MasterCard Inc (NYSE:MA) and Starbucks Corporation (NASDAQ:SBUX).
Despite mediocre earnings growth, Coca-Cola and PG trade with respective forward price-to-earnings ratios of 21 and 22. Similarly, V, MA and SBUX stock trade with forward P/E ratios of 23, 22 and 23, respectively. However, they are often times lauded as being highly overvalued despite their strong brands and growth.
Specifically with Starbucks, a number of investors now claim its growth run is over. Why? Because its recent same-store sales grew less than 5% in the U.S. While 23 times expected earnings is not cheap, I don’t agree that Starbucks stock is overvalued given its growth, brand and dividend.
Many investors say high-quality companies and consistent dividend-payers trade with a premium valuation. It’s why companies like Coca-Cola and PG trade at a lofty earnings-based valuation.
However, I believe SBUX stock belongs in this camp as well. Not only is it a premium high-growth company, it’s also got a dividend worthy of attention.
On April 5, 2010, Starbucks paid its first quarterly dividend of 5 cents per share on a split-adjusted basis. Pretty impressive, right?
While the initial payout may not have anyone’s jaw laying on the floor, the rate in which the company has upped that payout is a bit more noteworthy. In November 2016, SBUX stock paid a 25 cents dividend, a 25% increase from its prior dividend of 20 cents per share. Since its first dividend through its most recent, the company’s compound annual growth rate is more than 26% when it comes to dividend increases.
Imagine getting that kind of raise at work!