Thoughts on Investing into Starbucks (SBUX)

Ah…. smell that fresh roast of coffee?  The beans rattling in the container and the vroom sound from the grinder.  It’s Saturday every morning, afternoon and night.  It’s non stop, it’s busy and it’s quiet.  It’s a memory, a relationship connection, it’s a get away.  The moment that they call your name and hand you the special cup with the sleeve – you instantly become excited, as that moment gives you the sense of control, promise and forward-looking.  I speak of the Starbucks (SBUX) corporation and I’ve been tempted to make an investment into this life-connecting organization.

starbucks

Starbucks (SBUX) Background & meaning

Headquartered in Seattle, WA, Starbucks (SBUX) and in business since 1971 – this is a face of a premium quality coffee or experience, for those enthusiasts, heck I feel myself sometimes becoming one.  Howard Shultz, by the way, has got to be one of the best damn CEOs around.  I’ve seen videos and read books on Starbucks in the past, and this fellow seems very genuine and passionate about doing “good”.  He wanted to bring the Italian passion from their culture to us and to the coffee shops here in the domestic side of the United States (though we know how international Starbucks is and continues to become).  He envisioned just as I was envisioning above – community, memories and promise.  This is what the coffee culture provides Italy and other European cultures and I can feel the espresso buzz here stateside.  And I have an even more telling & passionate story to describe here in the following paragraph, yes – a dividend writing investor not even talking about numbers, but talking about… heart.

I was with my girlfriend’s family this past weekend and I was amazed at the passion about this company.  It clicked and I could see it.  I’ve witness sights at Starbucks before these conversations, but now I now can feel it.  I heard from family members, that they love to have a gathering of all close friends and family every Saturday and Sunday morning at a Starbucks in the area (they mix it up, good thing there is one every few minutes of each other) to talk about life, what’s coming up, family and old memories.  They talk about so many important, close and intimate events and it all begins and ends with one common trait – a sip of a Starbucks coffee.  I can feel the espresso already kicking it from thinking of the stories, the sights and what this company truly means and represents.  It’s only fitting, for this article, as I was in Seattle with the girlfriend this month and enjoyed more than our fare share of coffee experiences.  I finally can taste more than what coffee they roast and brew.

With all of that being said, they treat where they receive their product from with a high standard and utmost respect.  Further, I’ve had friends that had worked there through college and heard nothing but amazing stories – tuition assistance, health care and even retirement plans – and this was for part-time co-workers.  This is something I never really just sat down and took into consideration for a company.  I can honestly say – I don’t know too many companies like this and makes me wonder what it would be like to work at such a high quality company, through and through (also – if anyone has another other similar or different stories to share regarding these items of my writing – please, please write/comment below!).  To sum Starbucks in one word, I would call it – Genuine.  

Starbucks (SBUX) Dividend Fact Sheet

Okay, so we knew at some point I would have to turn the article to the real bean to this roast.  We will use metrics from our dividend diplomat stock screener, as well as others, to evaluate the company and see how we feel about them.  Let’s look at stats based on close price on 11/30/2015.

1.) Dividend Yield:  Annually, they produce, now, $0.80 per year over a stock price of $61.39 or a yield of 1.30%.  Could this company be a low yield, high dividend growth stock?  The metrics further below could help paint this picture.  However, the company’s yield is lower than my overall yield of my portfolio (around 4% currently).

2.) Dividend Payout Ratio: We all like to see the between 20 and 60% payout.  Based on Forward EPS guidance of 2016 at $1.89, this provides a payout ratio of 42%, which is right where we like to see it – smack dead close in the middle.  Plenty of room to grow the dividend there.

3.) Dividend Growth Rate: Increasing their dividend 5+ years now, the growth rate over that time period is 18.6%!  WHOA.  The impact of the growth rate would be quite the jolt to this roaster, and it is, it is.  I like it.  It’s worth to mention – the dividend increase was 25% this year/announced last month – this is definitely not one of those large companies with a minimal dividend increase – this was a power move.  Let’s just say a 20%+ dividend increase has been consistent with the past.  Amazing.  Further, ti’s worth to mention, there was also a 2:1 stock split earlier this spring.  Company is on fire!

4.) EPS Track Record: EPS went from $1.37 to $1.84 between 2014 and 2015… DAMN.  I don’t know what to say.  A 34% increase to earnings isn’t too bad.  Further, Starbucks repurchased back 29 million shares in FY 2015 compared to 21 million shares in FY 2014.  Decreasing shares and further buybacks can be great news for dividend investors!

5.) P/E Ratio: Forward P/E Ratio is high at 32.48, much higher than market and industry.  If you go to the expectation of 2017 earnings of $2.19, this reduces it to 28.  However, this company has historically had a very HIGH price to earnings ratio.  Earnings continues to grow, therefore, you definitely pay for that future value.

Starbucks (SBUX) Summary & Conclusion

This organization has become more than just coffee and they have been.  This is more about relationships and the meaning behind what one of the coffee shops signifies in your life.  Business is constantly booming and any price increase hasn’t phased the customers, that’s for sure.  The phrase that comes to my mind – how can you put a price on life’s moments?  two words – “you don’t”.  Starbucks – with the wonderful dividend metrics of growth rate, payout ratio and still an “OK” yield, have definitely enticed me to potentially initiate a position soon.  I not only had liked their roasted product (though I would usually push to go to a local shop instead), but now like the meaning behind each and every sip.  When I wake up, if I don’t have time to make a homebrew, I may hope to go and meet for coffee at Starbucks during the day and just catch up, create and share a moment.  Now, I am curious – how do others/you the readers feel about Starbucks?  Do you own them?  Would you consider investing into them?  Curious now hat you think of the company, how it’s managed and the experience they would like you to enjoy.  Please stop by and comment!  Appreciate it and looking forward to what you have to say.

-Lanny

 

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25 thoughts on “Thoughts on Investing into Starbucks (SBUX)

  1. I have been looking at SBUX for a while now and really interested in the company. It has huge growth potential with new markets as well as new lines of revenue (like lunch/snacks, breakfast, alcohol etc). I have been following the stock from about ~$50 levels. I waiting for the stock to drop back to around ~55 levels to initiate a purchase. Not sure if it is going to happen. Maybe I will run out of patience and then purchase it anyway…

    • DGJ,

      Nice – funny that you’ve also watched them for a while. I invested them for a friend around 4 years ago and he is up over 3x that investment + amazing dividend growth.

      I think we will see it potentially here come down a bit more. 3 straight down days, today being the biggest one. Great company. Keep me posted.

      -Lanny

  2. I’ve been watching Starbucks for a few years, always waited for a pullback only to watch it zoom higher and split the shares. Waiting cost me ALOT of money. When you look at their story and the innovation this company pursues, they’re amazingly well-managed. As you mentioned in the article, they give great benefits to their employees, and they found this actually helped their sales as the staff got to know customers better, who in turn kept coming back. Their stores are everywhere in some cities, but some markets they have almost no locations. They keep adding stores until they find sames store sales go down- doesn’t really happen though, which is a great sign customers really want your product. The stock usually trades at a higher PE, but I finally gave in and bought some shares 2 months ago. If there is a pullback, I’ll be going all in for sure

    • Geoff,

      Damn – this definitely hits deep – knowing that waiting has cost you and makes me obviously think about my investment path potential with them.

      I agree – same store sales go down – then they can re-consider what they have done – that’s not the case and they are adding locations where they aren’t or where there’s a good community. This is interesting and the point that they make employees happy, making customers happy – provides “happy” financial statements. Just makes sense. Now – should we wait for that damn pull back?… agh.

      -Lanny

      • I’d love a good pullback, but honestly I’ve waited so many times for a $5 pullback only to see the stock march higher. Obviously i don’t want to buy something wildly over valued, but thinking long term, I’ll hold this stock 15-20 years unless something really changes. $5 difference in price isn’t going to really matter over that time frame. I’ll buy and collect my dividends at these prices, and when the magical pullback happens, I’ll pull the trigger on a huge buy

  3. Big fan of the company and the whole “experience” of a Starbucks. If you can get consumers to relate to the company much like your extended family has that’s a huge plus in my book. Customer loyalty is what it’s all about! I currently own the company and would love to add more to my portfolio because there’s still a long growth trajectory for them. If I remember correctly they were increasing prices around 5% and still increasing volumes throughout the year by a significant amount. That leads to some really great growth. Hope to add more to my portfolio but the share price is a bit rich for my liking right now. I’d be willing to pay up to 25x forward earnings but 28 is still high.

    • JC,

      The loyalty is INCREDIBLE. Price is up and volume is up = big revenue increase.

      Price is a bit rich; the $55 point looks very appealing actually right now. Let’s keep each other posted.

      Thinking of Starbucks makes me itch to go drink one right now (it’s late right now, but dang!)

      -Lanny

  4. I love going at Starbuck’s! It’s a shame there’s not one closer to where I live… yet it might be a good thing for my wallet! 😉 Good tasty coffee, including these macchiato and late that are closer to a dessert than a coffee, but yummy!

    I was wondering if you had a source about their employees conditions, insurance and all? Also about where the beans come from? I’m not sure where or how I heard it, but I remember reading the company was not that respectful to countries where they cultivate the beans… I’m also curious to know if they apply same kind of conditions internationally or only in the States?

    As for the dividend itself, looks like a promising one right now. Would have to look at valuation though.

    Cheers,

    Mike

    • Mike,

      Great thing for your wallet then, no doubt haha. Great coffee, love their caps and lattes. Perfect atmosphere.

      My source on their employee conditions comes from my friends when I was in college/graduate school, as well as when I converse with them at the check out – moreso to see if it is still the same. Further, from reading their 10-K, you get a 5% discount on the stock on last trading day of quarter in the offering period.

      For beans – I am not sure/have the intimate knowledge of the treatment of the countries/areas where they cultivate them. I am sure it’s no better/worse than a mcdonald’s treatment, and one would hope the better.

      Promising dividend – no doubt. Growth – for sure. High at the moment, but have come down $3 since I wrote the article essentially. Would like to see in the mid $50’s… thoughts?

      -Lanny

    • Charlie,

      Thank you for the post. I hope they are decent points to make and yes, yes Howard Shults. He’ll keep going it seems for a few more years for sure, but I bet they were glad to have him back.. I know the stock has done decent.. joking. But yes, he is key/critical, like Steve is/was to Apple.

      -Lanny

  5. I think Starbucks is a fantastic business with a long growth runway ahead. The company is doing really well internationally, and continues to perform very well in the US. It isn’t the type of stock I typically analyze, but I really like the quality of the business. I’d wait for another steep sell-off, similar to what happened at the end of August.

    Just an FYI, the link connected to this text: “low yield, high dividend growth stock” doesn’t appear to be working.

    • Ben,

      Thanks for the comment and coming by. I agree – they are doing very well as of late, and particularly well here in the states. I can list off 10+ people that are in love with the place in less than 10 seconds. High Quality business with a great management team. I am hoping for more selling here, as we have seen this week.

      I fixed the link as well – I appreciate it Ben! The man, helping us out!

      -Lanny

  6. I think it is a solid company. I almost daily take the train and see lots of people with starbucks coffee walking around in the railwaystation which is certainly good. The coffees are to expensive for my taste but I’m a frugal person;). I would consider them to add to my portfolio if it get cheaper for me. The current exchange rate isn’t good for us europeans.

    Cheers,
    Geblin

    • Geblin,

      Thank you for stopping on by. See them fairly often eh? Which area are you travel/from?

      I see them majority of the cups of coffee in an individual’s hands – obviously easy to tell with the apparent red cup during the holiday season (too, too easy to spot out). I love that you can see how the business is doing, by individuals talking, drinking and visiting there, the passion for the brand is high.

      Understand about the exchange and valuation – I’m awaiting myself for a better opportunity at the moment. Best of luck!

      -Lanny

  7. SBUX doesn’t fit my typical requirements, but I bought some a few years ago for my wife account because she doesn’t have the same obsession with consecutive years of dividend growth that I have. The stock has done quite well. We worried when they closed a large amount of shops a couple of years ago, but the stock presses on. It’s a hold for us, because the unrealized gain is so high. The places are always jammed with people when ever I see one.

    It’s an addictive substance so repeat business is good, people like the convenience of the shops on the run, and the brand name recognition has no competition that I’m aware of other than coffee bean which seems to be disappearing. People seem to have no issue paying the high prices so business looks good – discretionary or staple???

    • DivChimp,

      I agree – usually I have a good dividend history for increases, as well – but man, this one is tempting.

      Their stores, as you said, are always filled. Prices go up a smidge – doesn’t matter, they want that experience.

      Discretionary or staple? I say both.. haha. Let’s just say – I know people, where if they aren’t getting out on the go – they are brewing their coffee in-house. It’s too funny. What a brand.

      -Lanny

  8. Lanny,

    SBUX is one of those companies I’ve been watching since before it even paid a dividend. My thinking a few years back was that the coffee is just so expensive that it might be hard to get full adoption from customers. So far, I haven’t gotten that right and SBUX has continued to prove itself over and over again.

    As you mentioned, Schultz is a world-class CEO and that, to me, is the real difference maker.

    The valuation is steep, but then again it has been for years and still marched steadily upward. At some point I will likely just initiate a starter position and add on dips (10% or more, kind of thing).

    Take care!
    – Ryan

    • GRB,

      Damn and the stock continues to increase, split and pay a very high growth dividend. Makes me mad!!

      Shultz – knows what he wants, tries to get the experience right and keeps his ear low to the floor. Great CEO.

      I wanted it at the $55 range, and boy, I thought we were going there the way the week looked. As I saw SBUX go from $62 to $59, thought – “come on, just a few more!”. Didn’t happy. Let’s keep monitoring this one.

      -Lanny

  9. I recently added a Forum to my blog. The first topic I posted on was about V and SBUX, how they are both great companies that never see much of a pullback. I also talked about how you can purchase SBUX using the Loyal3 platform. So I plan to start a position in SBUX and to dollar cost average my way into it! SBUX is the only store I ever go in that will have people lined out the door…. and everyone will just be patiently waiting…. no one gets frustrated and leaves! Its a great company that I look forward to building a position in.

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