Starbucks (NASDAQ: SBUX) may not appear to be of interest to
income investors at first glance. That's partly because it currently yields
only 1.6% and also because it is often viewed as a consumer discretionary
stock. With fears surrounding a potential restaurant recession building in
recent months, many investors may therefore believe that Starbucks' sales,
profitability and dividend payments could suffer.
However, in my view Starbucks is a consumer staple rather than a
consumer discretionary stock. This means that its earnings and dividends may
not be negatively affected by a slowdown in consumer spending. Further,
Starbucks has the potential to grow its profitability abroad in markets such as
China over the medium term. Alongside the introduction of new products and a
high dividend coverage ratio, I believe this means that Starbucks will become
one of the very best income stocks around over the medium term.
Source: SA
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