Being a brand that knows its customer base well and serves them accordingly, such as becoming a leader in plant-based menu innovation, Starbucks has created a moat that few rivals can ever dream of emulating.
But is the moat so wide that attractive investor returns are in the rearview mirror?
Starbucks Turned $10,000 Into $3,000,000+
Since Starbucks first came public via IPO, its share price has soared, showcasing the power of long-term investing. Those who invested early and patiently held onto their shares have enjoyed an excellent return on their investment.
For example, at the time of the company’s IPO, a $10,000 investment would have bought 588 shares. Following many 2-for-1 stock splits in the intervening years, that same investor would now have 37,632 shares. At its highs, that amounted to $4.75 million. At the stock’s most recent price, the $10,000 would be worth over $3.06 million.
And keep in mind that total does not include quarterly dividends that the company started paying out in March 2010, which have increased yearly ever since. The most recent dividend payout was $0.49 per share, up from $0.45.
Throughout Starbucks’ impressive history, the coffee giant has weathered many storms, showcasing its ability to adapt. For example, during the recent pandemic, the company successfully rolled out an online ordering system. This transition resulted in impressive fiscal 2021 earnings. Starbucks’ global comparable store sales increased by 20%, and the company’s Q4 net revenue was up 31%, hitting a record $8.1 billion.
3 Ways Starbucks Will Continue to Grow
Starbucks has a bright future with no plans of slowing down. CEO Kevin Johnson said last year that the addressable coffee market is expected to grow at a compound annual growth rate of 5% to 6% through 2023.
Starbucks has plans to increase its global presence, with a target to reach approximately 55,000 stores across 100 markets by 2030. With these plans in mind, investors can anticipate sustained growth.
Although there are concerns surrounding the transition to a new CEO, paired with inflation and pressure from unionization, there are several reasons to invest in Starbucks.
The following three things should boost your confidence in Starbucks, as the company’s growth potential is strong.
1. Moving Toward Grab-and-Go Ordering
Data shows that customers love grab-and-go ordering as well as Starbucks’ rewards program.
In the company’s Q1 fiscal 2022 report, Starbucks reported 26.4 million 90-day active users, contributing 53% of revenue. Of total revenue, 70% came from drive-through and mobile ordering. So, the company’s “grab-and-go” strategy is working.
Instead of competing with the many local coffee houses in metropolitan areas, Starbucks will continue to lean into this strategy, opening pickup stores that focus solely on mobile ordering. Currently, there are 42 Starbucks Pickup stores in the United States. The company can address its customer’s needs while opening stores with less square footage.
2. The Concept of Double-Lane Drive Throughs
Starbucks could successfully incorporate double-lane drive-throughs, making operations faster and more efficient by playing off their grab-and-go ordering strategy.
One lane would be dedicated to mobile orders and pick up — the other will allow customers to place their order at an ordering station as they normally would.
Since the “ordering station” line would likely be longer, customers would happily transition to mobile ordering. This strategy would likely result in more Reward Members, shorter lines, and more sales.
3. By 2035, Starbucks Could Be a Dividend Aristocrat
Starbucks is an attractive dividend stock. Not only has the company continually raised its dividend, but it doesn’t use much of its free cash flow or earnings to do so.
If the company stays on its current path, it could become a dividend aristocrat by 2035. To achieve this title, a member of the S&P 500 has to pay and raise its dividend for at least 25 consecutive years.
Last October, Starbucks announced its plan to pay $20 billion in dividends and share repurchases over fiscal 2022 through fiscal 2024, making this stock a source of passive income.
Is Now the Time to Buy Shares of SBUX?
Despite challenges in the market, Starbucks has continued to perform well. The company has a reasonable valuation, offers an attractive dividend, and its loyal, somewhat price insensitive, customer base is an inflation-resistant advantage.
Based on the company’s history, Starbucks offers durability among long-term investors. It’s looking ever more like a stock that caters to both value and growth oriented investors.
At its current price, Starbucks has 38.4% upside based on a discounted cash flow analysis that pegs fair value at $112 per share.