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Practical Advice from

Why Starbucks Stock Is Right for Income Hunters

4028mdk09 via Wikipedia


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. (KO) and Procter & Gamble (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. (V), MasterCard Inc. (MA) and Starbucks Corporation (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.

Data is as of February 27, 2017, unless otherwise indicated. Click on symbol links in each slide for current share prices and more.

This slide show is from InvestorPlace, not the Kiplinger editorial staff.


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