Starbucks (SBUX) is an international coffee retailer. The company also sells food, snacks, coffee beans, tea, and other related products. Starbucks is the largest coffee retailer on the planet. Starbucks stores are corporately run or licensed locations.
I am bullish on SBUX stock. (See Analysts’ Top Stocks on TipRanks)
Promising Dividend, Buybacks
In a market seemingly dominated by high-growth technology companies, Starbucks offers a chance to diversify one’s portfolio with a solid dividend growth play. Starbucks has grown its dividend for 11 straight years at a compound annual growth rate (CAGR) of nearly 13%. In 2010, the company paid $0.52 to common shareholders. In 2021, this figure grew to $1.80 annually and has been raised to $1.96 for 2022. The dividend is paid out quarterly.
Starbucks has pledged to return $20 billion to shareholders over the next three years through share repurchases. Share buybacks have several advantages for shareholders. First, this serves as a tax-deferred return of capital. The buybacks reduce the number of shares available which allows for increased future dividends on a per-share basis. It also boosts the EPS metrics.
Finally, the buybacks provide a level of support for the share price which protects investors. With the company purchasing shares in the open market, there is an increased demand for shares.
Customer Loyalty
Starbucks’ total revenue was down over the prior year in 2020 due to the COVID-19 pandemic. This is the first time this has happened in recent memory. After posting $26.5 billion in revenue in 2019, the company made just $23.5 billion in 2020. This trend has been corrected as the company posted $29.1 billion in total revenue in the fiscal year ended September 30, 2021.
One reason for the quick recovery is the loyalty of customers. To take advantage of this allegiance, Starbucks has a rapidly growing loyalty program. The program can be accessed through a physical card or mobile app. As of the end of fiscal 2021, the company boasted 24.8 million active loyalty members. This is an increase of 28% during the fiscal year.
Total store counts are also increasing steadily, providing new revenue streams each year. There is a large push to increase the presence in China as the United States market is fairly saturated with locations.
As of Q4 2021, there were 5,360 locations in China. This is up from 4,706 the year prior, an increase of 14%. While China is a fertile market, it also comes with serious risks. Relations between China and the United States are shaky. The Chinese government also has power to make life difficult on companies if it so chooses. While store counts have increased across the board, they are fairly steady in the North American market.
Wall Street’s Opinion
Wall Street analysts give Starbucks a Moderate Buy consensus rating. 14 analysts have Buy ratings, along with eight who have Hold ratings. Analysts’ price targets range from a low of $105 to a high of $142.
The average Starbucks price target of $124.24 implies 12.2% upside from the current price.
Conclusion on Starbucks
Starbucks is a strong dividend growth investment opportunity. The recent dividend raise and pledge to return $20 billion to shareholders over the next three years reaffirms management’s commitment to shareholders. Customer loyalty remains strong and the expansion into China allows for opportunities for growth.
Disclosure: At the time of publication, Bradley Guichard had a position in securities mentioned in this article.
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