There are many different ways to invest in the stock market. Some investors like high-flying and innovative growth tech stocks. Others appreciate a strategy that emphasizes value, similar to what Warren Buffett does.
Regardless of what side you lean toward, some investors simply just want to earn passive income from the businesses that they own. Owning companies that pay you for doing absolutely nothing seems like a sweet deal.
With that said, right now investors have the chance to buy one magnificent dividend stock while it's down 28% from its peak price. Here's why a $100 investment in this company's shares is a smart move today.
Strong track record
Starbucks(NASDAQ: SBUX) hardly needs an introduction. The dominant coffeehouse chain is a household name. And over the very long term it has done a wonderful job of rewarding investors.
The company currently pays a dividend that yields 2.5%. Investors might not immediately stand up and applaud this fact, but it's important to mention that Starbucks has raised its dividend for the past 13 straight years. And in just the last five, the quarterly payout has soared 58%, from $0.36 in Q1 2019 to $0.57 today. That's a nice boost.
Even during the depths of the pandemic, when executive teams at many companies prioritized conserving cash, Starbucks' dividend trajectory continued unchanged. It has an impressive track record of returning capital to shareholders in the form of dividends. This trend is likely to persist. That's music to investors' ears.
Favorable attributes
I don't think investors need to worry about Starbucks ever halting its dividend payouts. In fact, there are three reasons to believe the company can continue to consistently raise them going forward.
Starbucks has one of the world's most widely recognized brands, which gives it a wide economic moat. This allows the company to serve up its caffeinated beverages and food products at premium prices. The brand resonates with consumers, and it has helped Starbucks remain relevant over the years.
Despite being around for five decades and having almost 39,000 stores scattered across the globe, Starbucks still has solid growth prospects. Management sees there being 55,000 stores open by 2030. There's no doubt that the huge potential for higher revenue at that time will trickle down to larger dividend payments.
The final -- and perhaps more important -- reason to be optimistic about Starbucks' dividend increasing in the years ahead is because of the company's consistent profitability. In the past three years, Starbucks' operating margin has averaged a superb 15.1%. This gives it plenty of resources to keep cutting investors a quarterly check.
After the most recent quarter, management was forced to lower the full-year sales outlook due to softer demand trends. However, executives reiterated the initial forecast of earnings per share growth of 15% to 20% in fiscal 2024. That's the sign of an efficient organization.
What about valuation?
I mentioned before how shares are down meaningfully from their all-time high. This situation presents investors with an attractive buying opportunity. The stock trades at a compelling forward price-to-earnings (P/E) ratio of 22.4. That's close to the cheapest the shares have sold for in almost three years.
Starbucks' current valuation is a slight premium to the 21.6 P/E multiple of the broader S&P 500. But based on some of the factors that I touched on above, this is a superior enterprise when compared to the average business out there.
With Starbucks' powerful brand presence, its plan to open more stores, and rising profits, income-seeking investors shouldn't think twice. Putting $100 in Starbucks' stock today could prove to be a great move for your portfolio.
Should you invest $1,000 in Starbucks right now?
Before you buy stock in Starbucks, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Starbucks wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of March 25, 2024
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.
