Despite its lower-than-average yield, Starbucks could be a big dividend payer in the future.
The dividend growth formula (something I just made up) is pretty simple. There are only two parts: current dividend yield and potential dividend growth. The best stocks score high on both, but those are few and far between. More often, investors have to make compromises, and in those cases I prefer to look at stocks with relatively low current yields but massive potential for dividend growth.
While the S&P 500 currently offers an average yield around 2.1%, it's often worthwhile to look at stocks yielding well below that average due to their growth potential. Starbucks (NASDAQ:SBUX) currently yields just 1.4%, but in five years its dividends could easily double, producing an average annual yield on your original investment above today's current market average.
Here's a look at why Starbucks makes sense in a dividend growth portfolio…
Source: The Motley Fool