Starbucks Corp: Should Investors Take a Sip of SBUX Stock?
November 9, 2016
SBUX Stock: Strong Enough for Dividend Investors?
The consumer staples sector is a popular choice for dividend investors because no matter how the economy is doing, the sector’s cash flows remain steady and grow over time.
Starbucks Corporation (NASDAQ:SBUX) is part of the consumer discretionary sector, which is considered non-essential by consumers. However, Starbucks is in the business of selling coffee, and many people around the world cannot function without a cup every morning. As such, the argument can be made that Starbucks is a consumer staple.
Starbucks is a company that gets overlooked by dividend investors because the yield, which currently sits at 1.84%, is not screaming out to investors. With a low dividend yield, the question that needs to be asked is, “Why does SBUX stock deserve attention?”
The current dividend paid on a quarterly basis to shareholders is $0.25. Over the past five years, the dividend growth has been 294%. Starbucks has also repurchased shares; in the fourth quarter of 2016, 7.3-million shares were repurchased, and the company has repurchased approximately $8.0 billion worth of stock since 2001.
Starbucks is not just an average coffee shop that is around the corner from your house. The company operates a global business that still has many growth opportunities outside the United States. As of October 2016, Starbucks operates just over 25,000 stores in 75 countries. This is quite an accomplishment for a coffee shop, and plans to increase the store count are in place.
The country at the top of Starbucks’ agenda is China, which is fairly new territory. There were just 400 stores in the country in 2011, but now, there are 2,400 in the country, and in the next five years, the growth plan is to operate 5,000 Chinese locations. And opening stores is not Starbucks’ only plan for China; in 2017, the first international Starbucks Roastery and Reserve Tasting Room will be opened in the country. The hope for this initiative is to drive the customer experience to a higher level, which will strengthen the relationship between Starbucks and customers. (Source: “Starbucks Reports Record Q4 and Record FY16 Results,” Starbucks Corporation, November 3, 2016.)
Growth in China is not the only way that Starbucks is growing the top and bottom lines of its balance sheet. The company will be getting into the tea business, with plans to bottle and sell “Teavana” ready-to-drink tea in the U.S. In order to pursue this, Starbucks has formed a partnership with beer company Anheuser Busch Inbev SA NV (ADR) (NYSE:BUD), with drinks expected to hit shelves in 2017. (Source: “Starbucks Reports Record Q3 Financial and Operating Results,” Starbucks Corporation, July 21, 2016.)
Analyst Outlook
Currently the shares are trading at $54.56; based on the current trading price of SBUX, 75% of analysts have it rated as a “buy.” The average target price is $64.04, which would represent an estimated 17% upside looking out a year.(Source: “Starbucks Corp.,” MarketWatch, last accessed November 8, 2016.)
Starbucks is a stock for both dividend investors and growth investors. Typically, growth stocks tend to be very volatile and can have huge swings up or down. However, SBUX stock is not part of the group of highly volatile stocks; the beta for the stock is 0.65, which means day-to-day moves for the stock would be less than the overall market. A one-percent up or down movement for the market would represent a 0.65% move for SBUX stock, on average.
Final Word on SBUX Stock
For patient dividend investors, Starbucks Corporation could be an opportunity to own shares of a global coffee shop with ambitious goals. The company maintains a focus on returning cash back to shareholders, and as time passes, I wouldn’t be surprised to hear about more dividend hikes and share repurchases.
