If you're looking for dividend income, bravo! It's not just for retirees, after all. Yes, they will find income that arrives regularly very helpful -- especially because they don't have to sell any stocks for it.
But even we pre-retirees can benefit from dividend income. For example, my brokerage account collects cash from dividends throughout the year, and I deploy that money into additional shares of stock. (Some brokerages will even reinvest your dividends for you.)
So, let's say you're looking for $1,000 a year in dividend income and would like to buy stock in Starbucks (SBUX -1.64%). How much will you need to invest? Well, let's do a little math.
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Starbucks' dividend was recently $0.57 per share per quarter, and it has been increased regularly, by an annual average of about 10% over the past five years. There is a good chance that around the time you read this, the company might announce a dividend increase -- perhaps to around $0.60 to $0.63. But let's stick with $0.57 for now. (Starbucks' dividend yield was recently 2.37% -- the annual dividend amount of $2.28 divided by the price of $96.44 per share.)
To collect $1,000 in a year, divide by $2.28 and you'll see that the number of shares you'll need to own is 439. At the recent stock price, that would cost you about $42,300.
But should you invest in Starbucks? It does seem reasonably priced at recent levels, with its forward-looking price-to-earnings ratio (P/E) of about 25 -- a little below its five-year average of 27. The company has struggled a bit lately, but it recently hired a new CEO, Brian Niccol, away from Chipotle Mexican Grill, and he has big plans.
Starbucks might start advertising more while it works on improving its morning menu and tries to get customers to hang around more. A brand and in-store redesign might also happen. Read more on Starbucks here, and if you like what you read, consider buying some shares for the long term -- and for the growing dividend.
