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 (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