Dunkin' Brands, Starbucks, and Tim Hortons: 3 Coffee Companies to Watch

When looking for investment ideas, consider looking toward popular national restaurant chains.

Feb 3, 2014 at 10:25AM

When looking for investment ideas, consider looking toward popular national restaurant chains. Popular coffee chains such as Dunkin' Brands (NASDAQ:DNKN), Starbucks (NASDAQ:SBUX), and Tim Hortons (NYSE:THI) represent good examples. These chains sell the much needed morning caffeine jolt in the form of coffee and cappuccino, and/or a doughnut. They also sell food providing nourishment for the day.

The two-in-one company
Dunkin' Brands, via its network of franchisees, operates 10,800 Dunkin' Donuts restaurants and 7,100 Baskin-Robbins ice cream shops as of the most recent quarter. Essentially, shareholders buy into a company that receives royalty income from two different restaurant sources. Moreover, Dunkin' Brands utilizes a "nearly 100 percent franchised business model." This means that the franchisees do the heavy lifting on overhead costs.

Overall, Dunkin' Brands grew its revenue and net income 9% and 36%, respectively, in the most recent quarter. The company is growing both domestically and internationally, with more robust growth coming from the international markets. Dunkin' Donuts and Baskin-Robbins grew revenue 9% and 2%, respectively, on the domestic front and 14% and 11%, respectively, on the international front in the most recent quarter. Last year, Dunkin Brands paid out 53% of its free cash flow in dividends, offering $0.76 per share per year, translating into a yield of 1.6%.

Starbucks also still growing
Starbucks and its franchisees operate more than 20,000 stores globally. This company also performed well in its most recent quarter, with revenue and net income increasing 12% and 25%, respectively. Starbucks' Americas segment saw its revenue expand 8%. It saw more growth from international markets, with its Europe, Middle East, and Africa segment and China/Asia-Pacific segment expanding revenue 11% and 25%, respectively. Starbucks' channel development segment, which includes grocery store placement of its products, grew 7% in the most recent quarter.

Starbucks sits on $1.4 billion in gift card loads waiting to be recognized in revenue. CEO Howard Schultz said that gift cards represent a good way to introduce Starbucks to new customers. The company also sells tea and premium juice, and is experimenting with handcrafted carbonated sodas. Last year, Starbucks paid out 36% of its free cash flow in dividends. Currently, the company pays $1.04 per share per year in dividends, translating into a yield of 1.4%.

The Canadian coffeehouse
Tim Hortons and its franchisees hold the No. 1 spot in Canada in terms of size, with 4,350 restaurants. The United States and the Middle East serve as a home to 817 and 33 restaurants, respectively. The company certainly lacks the ubiquity of Starbucks and Dunkin' Brands; however, it also has room for expansion since its presence beyond the western hemisphere is almost nonexistent.

Also, most of Tim Hortons' restaurants are franchised. Overall, the company grew revenue and net income 3% and 8%, respectively, in the most recent quarter. Franchise-related revenues expanded 7% during that time frame. Its revenue in the more highly penetrated Canadian markets increased a meager 0.5% last quarter. Revenue in Tim Hortons' U.S. segment grew 20% during that time frame. Last year, Tim Hortons paid out 40% of its free cash flow in dividends. Currently, the company pays its shareholders $0.99 per share per year, yielding a decent 1.9%.

Looking ahead
All three companies face plenty of room for expansion in the international markets. People need that morning caffeine to get a start on their day, and these companies can fill that need. In the case of Dunkin' Brands, Baskin-Robbins provides the company with a little more diversity. Moreover, its 100%-franchised model allows the company to focus on its brands and products. Starbucks' recent entry into the tea and juice markets will provide it with additional potential for long-term gains. Also, if its experimentation with carbonated sodas goes well, that will give Starbucks another feather in its cap. Continued economic recovery will get Tim Hortons back on track. It faces plenty of room for expansion in the United States, Asia, and markets in the Middle East. All three of these companies belong on your Motley Fool Watchlist and deserve more of your research time.

Feast on this opportunity
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

William Bias has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers