- Starbucks consistently raises dividends, and can afford to
- Starbucks grows about 15% per year and is expanding into tea, beer and wine
- What Starbucks really sells is time, time to work and time to meet.
Starbucks stock is a great long-term holding.
Since going public in 1992, Starbucks stock is up 16,000% and has split five times, the most recent being just last year, shortly after I became a buyer. Starbucks (NASDAQ:SBUX) began paying a 5 cent/share dividend in 2010 and that has since grown 400%. My Starbucks stock position showing a gain of about 50% in just two years.
It’s the kind of stock you can reliably buy on a dip, like the one we’re now experiencing. It last traded at its current level in early September, which followed a drop during the August market rout to $50.30. The November high is about $63.50. The price on February 9 was about $54.50, so you’re looking at higher lows and higher highs since the last market fall – that’s always a good sign.
But this is not a stock you should buy today and sell tomorrow. Starbucks is a stock you buy and let mellow in your portfolio, a solid long-term growth holding.
Starbucks usually grows revenues at 15% per year, bringing nearly 15% of that revenue to the net income line. During the 2015 fiscal year, which ended in September, the company was able to cover its 68 cents in dividends nearly three times, with net income of $1.82/share.
That’s one key point about Starbucks – since it started paying dividends, it has grown them consistently. 2015 dividend was nearly double what was paid in 2012, and during the year the rate was raised again, and it should pay 80 cents this fiscal year. When you have an accelerating dividend the current yield, about 1.5%, becomes less important than the relative yield you can expect later.
To call Starbucks a coffee shop is like calling Coca Cola (NYSE:KO) a company that makes sugar water. The company is selling a loyalty experience. I am often amazed at the crowds on the couches at my local Starbucks because there are many other coffee shops nearby and they also have free WiFi. But Starbucks is great at getting people served fast, and its loyalty program gives it immense insight into what its customers want.
That’s why Starbucks has been expanding into other types of beverages and snacks, with beer and wine at many locations during the evening, and the Teavana chain expanding its line of fine teas in the afternoon. For Americans, it’s a home away from home, and when they’re on the road it performs the function that American Express (NYSE:AXP) performed for travelers 80 years ago. For those international drinkers, it’s also a real taste of America, again, like Coca-Cola was in the 1940s. It represents safety and security in a troubled world.
That’s a lot to offer for just $5, which is what the average Starbucks drink goes for these days. It’s time, time for meeting, time for working, and time is worth paying for.
If you’ve got the time to wait on an investment, for as little as a few years or even decades, Starbucks stock is something you should buy on the dips and hold on to.