Starbucks Stock Has Hallmarks of a Winner
Starbucks Corporation (NASDAQ:SBUX) is still a double-digit earnings growth story in a market where there’s not a lot of genuine growth to go around. Naturally, this affords SBUX stock a rich valuation, but also a loyal one, as evidenced by the tremendous performance of the position, even over last year.
Keeping this position strong this year was a well-deserved share split, followed by a solid improvement in the company’s quarterly dividend to $0.20 per share, up from the previous $0.16 per share. Starbucks has almost doubled its dividends paid over the last two years and the company has a lot more room to increase its payout, which I think will go a long way to keeping institutional investors long on the position.
With a broader market correction, SBUX stock is no doubt vulnerable. But in either a rally or generally flat market conditions like we’ve experienced all year, I think Starbucks can keep ticking higher on the charts, if only for the simple reason that this large-cap coffee maker is producing the growth in its financials that investors want.
The company’s five-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Is Starbucks Still a Growth Business?
The fact of the matter is yes, this company is still a growth business. This $90.0-billion coffee retailer is still growing through a combination of new store openings (in fiscal 2015, 79% of total sales came from corporate-owned locations, 10% from licensees, and the rest through consumer packaged goods and foodservice) and increased sales in existing stores. In its most recent quarter, the fourth fiscal quarter of 2015 (ended September 27, 2015), Starbucks’ total sales improved 18% comparatively to $4.9 billion. This was due to an eight-percent increase in global comparable store sales with a four-percent increase in total traffic.
Additionally, GAAP earnings per share in the fourth quarter grew 10% to a record $0.43. For fiscal 2016, management’s current outlook is for a 10% comparable gain in total sales.
Share repurchases remain robust, but this is normal for most large-cap, dividend-paying stocks.
Starbucks stock has handedly beaten the S&P 500 index, the NASDAQ Composite, and the S&P Consumer Discretionary subsector over the last five years. It is a top-notch existing winner that I think has continued momentum in the absence of a market shock.
Comparatively, sales and earnings per share growth is expected to slow from previous rates. But the company has a lot of tools at its disposal to keep shareholders happy, which I think bodes well for continued dividend increases going forward.
Here’s the Bottom Line on Starbucks Stock
For the most part, Wall Street earnings estimates for fiscal 2016 and fiscal 2017 have been ticking higher. This position is fully priced on the stock market, but should remain so. In a market with very few genuine large-cap growth stocks, Starbucks has a great track record, which can hold in a rising interest rate environment.
In many ways, the company just has to keep on doing what it’s been doing of late and investors will bid the stock. With good prospects for rising dividends over the next few years (and share repurchases to pay for them) this existing winner should be able to keep ticking higher.