One of the biggest misses in my investment career is Starbucks (SBUX), recalls Chuck Carlson, dividend reinvestment specialist and editor of DRIP Investor.
I remember when the company went public in 1992. I don’t drink coffee, so the idea of an international chain of coffee shops seemed, well, goofy to me. Who would go to these places and buy what appeared to me to be very expensive coffee?
As it turns out, a lot of people. Indeed, Starbucks annual revenue in fiscal 2023 ending October 1st was $36 billion. I’m having trouble processing that number, quite frankly. I’m sure if you would have told me in 1992 that you could generate $36 billion in annual revenue from coffee shops, I would have thought you were crazy.
Of course, the big question for investors: Is there anything left in the coffee pot? I think Starbucks has plenty of percolating potential, which is why investors should take a sip of these shares.
Starbucks has more than 38,000 stores worldwide. At the end of the fiscal fourth quarter, 61% of the company’s stores were in the U.S. (16,352) and China (6,806). Obviously, China is an important market for the company, and the China exposure is one of the appeals of this stock.
Indeed, investing in China and getting a piece of this massive market is rather difficult right now given relations between the two countries and the inevitable barriers that arise investing directly in Chinese stocks.
Starbucks provides what I consider to be one of the “safer” ways to access the China market. Starbucks had on average almost four new store openings daily in China in the fiscal fourth quarter. Starbucks expects its store count to reach nearly 41,000 stores globally by the end of fiscal 2024, with approximately 75% of that growth coming outside of the U.S.
Starbucks brewed up a solid fiscal fourth quarter overall. Global comparable store sales were up 8% in the quarter, driven by a 4% increase in average ticket and 3% increase in comparable transactions.
China comps were up 5%. For the quarter, per-share earnings grew 31%. For fiscal 2024, the company is looking for comparable store sales growth in the 5% to 7% range. That guidance could turn out to be conservative with a stronger rebound in China’s economy.
Another attraction of Starbucks is its tasty dividend. The firm recently boosted its dividend 7%. The current dividend yield is more than 2%.
Starbucks has digital relationships worldwide with over 75 million customers. That is a powerful loyalty group that has translated into impressive same-store sales and should fuel further growth. I like the combination of growth and dividend flow and expect Starbucks to post total returns exceeding the market return over the next 12 months.
Please note Starbucks offers a direct-purchase plan whereby any investor may buy the first share and every share directly. Minimum initial investment is $500. Subsequent investments are a minimum $50.
