Recent Buy // SBUX

I have to be honest- I didn’t intend to stay away from the blog for this long. While I  thought the small market correction in August would continue, many stocks rebounded and finding quality stocks at a discount was much harder to do. However, I, like many other personal finance/dividend investing bloggers, believe that time in the market is much more important than timing the market for the absolute lowest price. While it is advantageous to buy at rock bottom prices, it’s much more important to invest in a company that you believe in, has the potential to grow and is, at least, fairly valued.

I purchased 15 shares of Starbucks Corporation (SBUX) on 10/30/2015 for $63.32 per share.

investing in starbucks corporation

Overview

Starbucks Corporation is a global roaster, marketer and retailer of specialty coffee operating over 21,000 stores in 65 countries. The stores offer coffee, tea beverages, packaged roasted whole bean & ground coffees, single serve products, juices, bottled water as well as food items like pastries, breakfast sandwiches and lunch items. If that weren’t enough, they also license the rights to production and distribute Starbucks branded products ( a partnership with another company in my portfolio, PepsiCo).

SBUX makes money by selling a discretionary product so their primary customers are people that have extra money to spend and may not necessarily be “value shoppers”. Their target includes coffee lovers, coffee snobs, or people who just want to quickly grab a food item; this includes people who are devoted coffee drinkers who are loyal to the taste of SBUX product OR people who want to be seen as “cool”.

Quantitative

Starbucks has really exploded in terms of growth. Since bringing back Howard Schultz as CEO, they’ve rapidly expanded domestically and internationally. They’ve also have grown their brand recognition, have built a robust social media presence and have led the way in terms of mobile payments and loyalty programs. They also are seen as leaders when it comes to civic duty and ensuring best treatment of part-time employees like offering 401(k) matching and tuition assistance.

  • Revenue grew by approximately 11.12% over the last 10 years.
  • EPS is 1.77 and has increased by 18% over the last 5 years.
  • Dividend yield at time of purchase was 1.26% and SBUX pays a dividend of $0.80 per share. SBUX has been increasing dividends for 5 years and the payout ration is currently 34.4%. This tells me there is still plenty of room for the dividend to grow at a healthy rate so I am not too concerned about the current low yield.
  • Debt/Equity ratio: 0.40

Risks

While Starbucks has been growing tremendously, this investment doesn’t come without risks. Even a coffee lover who just gets a cup of black coffee with no accoutrements looking to pay at least $3.00 per visit. That could add up to a $15-$20 weekly habit and if you were trying to save money, this may be one of the first areas you could potentially decrease spending. A reduction in consumer discretionary spending due to economic downturn could result unfavorably for SBUX.

Valuation

  • The P/E ratio is currently 35.2. This is slightly higher than the industry average of 33.2 and much higher than the S&P 500 average of 19.3.
  • Morningstar valuation: $60
  • S&P Capital IQ valuation: $53.90, rated a 4 star “BUY”

Conclusion

Starbucks Corporation overall is a company that is primed for more growth. While the current yield is low, the payout ratio is low and revenue has been steadily increasing. This means that the dividend has room to grow and I expect that this dividend growth will help cover future inflation. This is a good stock to own now for the currently sound fundamentals and later for the opportunity for expansive growth.

This purchase adds $12.00 to my annual dividend income based on the current $0.20 quarterly dividend.

Full disclosure: Long SBUX and PEP

Thanks for reading.

Images: Death to the Stock Photo with graphics added by One Woman’s Worth.

Advertisements

Author: One Woman's Worth

Born with a dollar and a dream. Hoping to double both in my lifetime.

1 thought on “Recent Buy // SBUX”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s