Starbucks Corporation: 3 Reasons to Be Bullish on SBUX Stock
Upside for SBUX Stock?
Starbucks Corporation (NASDAQ:SBUX) stock is one that dividend growth investors should consider.
Shares of SBUX stock are down 12% over the past year, leaving investors wondering if shares are worth considering.
SBUX stock is not one that makes the news everyday because it is not a technology high flyer. However, Starbucks is a company focused on their shareholders and growing the bottom line. Let me explain.
Dividend and Share Repurchases
When it comes to SBUX stock, the yield is not one that would attract high-dividend investors; rather, it would get more attention from dividend growth investors. The dividend over the past five years has grown 284%. Also, the dividend has grown in each of these five years.
Starbucks’ fourth-quarter earnings, which were released on November 3, included a dividend hike of 25%, now paying $0.25 per share on a quarterly basis. Based on the current trading price of $55.77, the shares are yielding 1.79%.
Another method that Starbucks has used to increase shareholders’ bottom line has been share repurchases. In July 2015, the board of directors approved repurchasing 50 million shares. At the time, shares were trading at approximately $55.00, meaning the 50 million shares were worth approximately $2.75 billion total. (Source: “Starbucks Announces Additional Share Repurchase Authorization,” Starbucks Corporation, July 23, 2016.)
These are just some of the many share repurchases completed by Starbucks over the years. Since 2001, more than 430 millions shares have been bought back, equating to $7.4 billion.
Growth in China
For Starbucks to continue down this path, earnings growth is needed, and the focus is on China as the next big driver of revenue.
The first priority in the country is to increase the store count. In the fourth quarter of 2016, 316 Chinese stores were opened, which was 93 more stores than in the fourth quarter of the prior year. As of today, there are 2,400 stores located in China, with plans to increase this number to 5,000 stores.
Going by the revenues from China, management is implementing the right strategy to further grow the company. Taking a look at the fourth-quarter earnings and comparing them to a year ago, the revenue from China alone has grown 29%. In comparison, growth in the U.S., Starbucks’ home market, is five percent. In other words, the investment in China is paying off. (Source: “Starbucks Reports Record Q4 and Record FY16 Results,” Starbucks Corporation, November 3, 2016.)
Starbucks is a powerful brand. However, the company knows that partnerships are needed to further grow the bottom line.
One such partnership is that with beer company Anheuser Busch Inbev SA (ADR) (NYSE:BUD), which Starbucks is teaming with to launch “Teavana,” a ready-to-drink tea. Ready-to-drink tea is one of the fastest growing segments in the tea and company space, growing 16% over the past five years, so the product is expected to have a huge impact on business in 2017. (Source: “Starbucks and Anheuser-Busch to Launch Teavana Ready-to-Drink Tea in U.S. in 2017,” Starbucks Corporation, June 2, 2016.)
The partnership will focus on the strengths of both companies. Starbucks will focus on the retailing side of the business, while Anheuser-Busch will be responsible for production, bottling, and distribution. The product will only be available in the U.S. initially, but this partnership could benefit both companies greatly via expansion into more countries around the globe.
Final Thoughts on SBUX Stock
As the largest coffee shop chain in the world, Starbucks has no plans of slowing down growth. With its focus on dividends, share purchases, and growing the bottom line, SBUX stock is a unique retailing stock that should not be ignored.