Starbucks Corporation (NASDAQ:SBUX) operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company initiated its dividend in 2010 and has been growing distributions rapidly since then. While the company has only managed to increase dividends for four years in a row, I believe that it has the potential to reach dividend achiever status, and has the growth story to become as successful for its dividend growth investors.
The most recent dividend increase was in November 2016, when the Board of Directors approved a 25% increase in the quarterly dividend to 25 cents/share. The company’s competitors include McDonald’s Corporation (NYSE:MCD), Nestle SA (ADR) (OTCMKTS:NSRGY) and Dunkin Brands Group Inc (NASDAQ:DNKN).
Since the company initiated a dividend payment in 2010, the stock has returned 315%. Future investment returns will be dependent on growth in earnings and dividend yields obtained by shareholders, as well as the initial valuation (1) locked in at the time of investment.
The company has managed to deliver a 17.80% average increase in annual EPS over the past decade. Starbucks is expected to earn $2.16 per share in 2017 and $2.48 per share in 2018. In comparison, the company earned $1.90/share in 2016.
Starbucks has a strong brand name, synonymous with quality, customer service and a unique atmosphere at its stores. The company also gains from benefits of scale as it expands its retail store footprint globally. Future growth for Starbucks will be delivered by expanding the number of stores globally. While the US market is close to being saturated in terms of store count, there is plenty of room for growth in countries like China, India, Brazil. The company can also squeeze in more growth from existing US stores by adding drive-through windows and extending store hours. The international expansion can be aided by replicating the best practices of stores in the US and then replicating success abroad, one store at a time.
The benefits to scale relative to other coffee shops is adding to the company’s bottom line. In addition, the strong brand and unique customer experience have translated into pricing power for Starbucks Corporation (NASDAQ:SBUX). Hence, I believe the company to have a wide moat.
In addition, Starbucks is actively diversifying its revenues by expanding into other channels, such as K-cups, packaged coffee, etc. If Starbucks could further leverage the company’s brand by selling a variety of branded consumer goods at mass retailers, it could further grow revenues and profits.