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Live Off Dividends

Starbucks - Coffee which grows your money

Updated: Dec 23, 2022

☕ 𝗗𝗼 𝘆𝗼𝘂 𝗹𝗼𝘃𝗲 𝗖𝗼𝗳𝗳𝗲𝗲?

Regardless of your answer, I am sure you know Starbucks company.

Starbucks Corporation operates as a roaster, marketer, and retailer of specialty coffee worldwide.

Can you guess how many Starbucks stores there are?

As of October 29, 2020, it operated approximately 32,000 stores. I know it is hard to believe...

Here is a nice country representation, provided by Statista:

Starbucks stores worldwide empire

📈 𝗦𝗮𝘃𝗲 𝘁𝗼 𝗶𝗻𝘃𝗲𝘀𝘁, 𝗻𝗼𝘁 𝘀𝗮𝘃𝗲 𝘁𝗼 𝘀𝗮𝘃𝗲

The company has generated very good capital growth over the last 20 years and if I compare it with the SPX500, then Starbucks outperformed the index by 505% in Total Return with dividends reinvested.

The P/E growth ratio is 18 which is equal to the earnings growth rate(18%).

Debt is a thing to worry about. The whole company slipped during Covid and they didn't recover yet fully. That's why the Debt to Equity ratio looks very bad which is-275%. Currently, this looks worse but this is just the current situation; the future looks better based on the estimates.

The future growth looks very good like it was in the past. The expected growth rate will be about 29% in the next 3-5 years based on 4 analysts. The company has beat or met estimations 75% over time.

Starbucks earnings estimates

Picture source:

💵 𝗟𝗲𝘁 𝘆𝗼𝘂𝗿 𝗱𝗶𝘃𝗶𝗱𝗲𝗻𝗱𝘀 𝗽𝗮𝘆 𝘆𝗼𝘂𝗿 𝗰𝗼𝗳𝗳𝗲𝗲

Starbucks dividend yield

They started to pay dividends in 2010 and they are raising it every year significantly.

Only 1,76%; although they raised their dividends recently; I can understand why it is this low, because of the capital appreciation which I explained above.

The free cash flow is covering the dividend very well. Besides 2020 with Covid the payout ratio was always between 40-50%. I like to see a payout ratio under 75%; in this way, they can manage and raise their dividends every year.

The latest earnings call said that they will buy back $20b worth of shares in the next 3 years which is a very positive point.

𝗙𝗨𝗡 𝗳𝗮𝗰𝘁: If I want that your dividends to pay your coffee then here is an example of how much money you have to invest for this.

Let just say you drink every day a coffee for $2. In one year then you will need $730 only for coffee. (really! you can calculate by yourself)

This means with the current yield you have to buy 372 shares from Starbucks to get this amount of dividend in one year. 372*$111.15(current share price)= $41.348

⚖ 𝗙𝗮𝗶𝗿 𝗩𝗮𝗹𝘂𝗲

I use the most widely accepted method to calculate the fair value of a company which is the Discounted Cash Flow(DCF).

After I made my calculation I realized that the current stock price($111.45) is overvalued by 8%. The fair value should be around $103.

✔ 𝗥𝗶𝘀𝗸𝘀 𝗮𝗻𝗱 𝗼𝘃𝗲𝗿𝗮𝗹𝗹 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆

Is Starbucks worth buying? If you are in a phase where you have the amount of dividend yield that you want from your portfolio then YES buy SBUX and dilute your portfolio with this small yield but for the small yield you will get a safe company on your side which will win on the capital appreciation, compare to the big yielder but small grower companies.

If you don't have much money yet and you feel safer if you have the hard cash in your hand then put Starbucks aside but keep an eye on it.

Hope you enjoyed! You can interactively explore the Starbucks' chart below

Feel free to share your ideas in the comments section!



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