Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Reasons Starbucks Will Keep Winning

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Shares of Starbucks (NASDAQ: SBUX  ) are currently trading near an all-time high of around $77 apiece. Their impressive run makes it easy to write off the stock as being too pricey today. However, shares still trade at a bargain to their ultimate potential. Here are three reasons that Starbucks will continue satisfying shareholders for years to come.

Strong dividend growth
The world's largest coffee retailer has increased its dividend by 24% in the past year, once again proving it knows how to put shareholders first. Starbucks now pays a quarterly dividend of $0.21 per share, with a dividend yield of 1.09%. To be clear, a one percent yield isn't great. But we're not looking for sky-high yields. Rather, it's growth that we're after. Fool writer Daniel Sparks estimates that Starbucks will grow its dividend to about $2.08 in the next 10 years, with a yield around 3.3%.  

Moreover, Starbucks' payout ratio of 38% tells us it shouldn't have any problems continuing to hike its dividend in the future. It also means that Starbucks will have enough cash left over to reinvest in growing its business. That's reassuring considering rival coffee stop Dunkin' Brands (NASDAQ: DNKN  ) pays out more than half of its operating cash flow in dividends. While Dunkin's payout ratio of 58% isn't terrible, Starbucks' is more reliable. In the first quarter of fiscal 2013, Dunkin' Brands boosted its quarterly dividend to $0.19 per share, up from $0.15 in 2012 .

Last year, Starbucks returned more than $1 billion to shareholders through dividends and share buybacks -- given management's execution skills and growth prospects to be outlined, it's likely that this trend will continue. Ultimately, Starbucks' ability to generate superior cash flow will fuel its shareholder payouts for years to come.

Opportunities in emerging markets
Not only is Starbucks growing its dividend, but it's also expanding into new markets. There's a lot of growth waiting for Starbucks in emerging markets, particularly in China and India. The company currently has 1,000 locations up and running throughout China and Japan. However, in China specifically, it plans to open an additional 1,500 stores by 2015.

When it comes to the Chinese market, Starbucks has already proved it can succeed where others have failed. Now it is a matter of unlocking growth in the region. As it stands, China is on pace to become Starbucks second-largest market outside of the United States. And that says a lot considering Starbucks currently operates more than 19,000 stores, across 62 countries.

Last year, Starbucks opened its doors in India, which marked its most successful launch in the company's 42-year history, according to CEO Howard Schultz. With Starbucks firmly focused on China and India, the company is now on track to have 20,000 stores on six continents as soon as next year.

Transforming into a global consumer brand
Nevertheless, Starbucks is much more than an international coffee chain these days. In fact, three strategic acquisitions are helping Starbucks conquer new product categories including food, juice, and tea. In 2011, the company paid $30 million to buy Evolution Fresh, a premium juice maker. Today, it's leveraging that purchase to bring healthy snack bars and juices into its stores.

The Evolution brand could also become a powerful growth engine for Starbucks in the consumer packaged goods space. Whole Foods stores, for example, now carry Starbucks' Evolution Fresh juices in 12 flavors, as well as Evolution Harvest snack bars. Starbucks and Whole Foods worked out the deal in August. Better still, Starbucks plans to have its Evolution products in 8,000 U.S. cafes and grocery stores by year-end.

Throw in last year's acquisition of bakery chain La Boulange, along with Starbucks' more recent purchase of Teavana, and you have yourself a burgeoning world-class consumer packaged goods company. This should fuel revenue growth as Starbucks continues to nurture these businesses into prominent brands.

Starbucks' stock has tripled in value over the last three years, and it should continue on that trajectory going forward, thanks to the catalysts outlined above. From solid dividend growth and international expansion to a budding portfolio of profitable brands, Starbucks' growth story is far from over.

How to unlock even more growth
If you're looking for the next big growth stock, The Motley Fool has you covered. In this new free report from Motley Fool co-founder David Gardner, you will discover how to find truly wealth-changing stock picks. You will also find his  favorite growth stock superstars and some stocks you might not have heard of. It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2668642, ~/Articles/ArticleHandler.aspx, 9/30/2016 6:21:59 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,143.45 -195.79 -1.07%
S&P 500 2,151.13 -20.24 -0.93%
NASD 5,269.15 -49.39 -0.93%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 4:00 PM
SBUX $53.45 Down -0.53 -0.98%
Starbucks CAPS Rating: ****
DNKN $50.68 Up +0.26 +0.52%
Dunkin' Brands Gro… CAPS Rating: ***