In this article, we discuss the 5 best dividend stocks to buy according to Stanley Druckenmiller. If you want to read our detailed analysis of these stocks, go directly to the 10 Best Dividend Stocks to Buy According to Stanley Druckenmiller.
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5. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 61
Ranking 5th in our list of 10 best dividend stocks to buy according to Stanley Druckenmiller is Starbucks Corporation (NASDAQ:SBUX). Starbucks is a global coffeehouse and roastery firm that has over 32,000 locations globally. The corporation has around 8,900 outlets and 6,300 licensed outlets in the United States alone. The firm has consecutively increased its dividend for the past ten years, with an average annual increase of 16.96%. On May 11, the company’s Board of Directors announced that the company will issue a cash dividend of $0.45 per share on May 28. SBUX shareholders who bought the stock before the ex-dividend date on May 12 are entitled to the cash dividend.
Starbucks Corporation (NASDAQ:SBUX) has a market cap of $134 billion and currently offers a dividend yield of 1.58%. Starbucks Corporation’s net revenue in the first quarter of 2021 came in at $4.7 billion, a 6% decrease from the same period in 2020. Shares of SBUX rose 46% over the past twelve months. On April 28, Jefferies maintained a Buy rating on Starbucks Corporation and raised the price target to $135.
Wedgewood Partners mentioned Starbucks Corporation (NASDAQ:SBUX) in its Q1 2021 investor letter:
“As we have observed Starbucks through the unpredictable events of the past year, we believe all the things we liked about the Company’s competitive position before the pandemic have been turbocharged by the pandemic. We always have maintained the Company had no serious competition, anyway, and that in both large growth markets (U.S. and China), there was enormous fragmentation of share that would allow the Company to continue to expand through market expansion (especially in China) and through share gain versus small competitors. In fact, when we last discussed Starbucks, there was a lot of noise about competition in China from a newly established domestic competitor, Luckin Coffee, and that situation quickly dissolved into farce. In any case, had Luckin been a legitimate business, we had maintained that China was a massive market – and one in which coffee consumption was massively underpenetrated in comparison to other markets. We believed too that there was plenty of room for multiple large competitors to exploit.
The pandemic disaster over the past year truly highlights the Company’s financial strength in comparison to its small competitors, most of which struggled to survive, and many of which didn’t make it. While there is no perfect data, we have seen estimates from industry groups and restaurant distributors that as many as 15-20% of small, independent restaurants across the broad food and beverage industry may have closed permanently as a result of the pandemic, sadly. Starbucks not only survived due to its superior financial position; they also used its financial resources to invest in a variety of expanded or new capabilities, including the addition of drive-through capacity, new “walk-through” pick-up locations in urban areas, increased investment in technology to drive speed within the stores and drive-through lanes, and expansion of its loyalty program. These could have been viewed, prior to the pandemic, as a fairly big advantage in terms of convenience alone versus the Company’s small primary competitors. In the age of the pandemic, though, one might consider something like a drive-through an absolute necessity, as customers choose not to expose themselves to the interior of restaurants or to other people.
Another sign of the Company’s superior financial strength has been the continued expansion of the store base, even in the face of the pandemic. As of the end of the Company’s last fiscal year, September 2020, Starbucks had opened +4% more stores, including +13% growth in China. Additionally, Starbucks not only opened stores as competing stores folded; the Company is seeing more attractive lease terms on new stores (and on existing stores, for that matter), meaning that a store opening program that already had generated attractive financial returns will now generate even more attractive returns.
Short-term results, of course, have been quite poor all over the world, with some portion of the Company’s locations closed or operating on reduced hours for the last several quarters. Customers are simply reticent to show up even when stores have been open. We expect shorter-term results to remain unpredictable, as they will be tied to the ebb and flow of various COVID-related lockdowns around the world. However, Starbucks said it expected sales at established locations in both the U.S. and China to rebound to pre-pandemic levels in the March quarter that just ended. In addition, despite reduced operating hours still, and despite customers’ work and school routines being completely disrupted, a surprisingly early development in comparison to what we, at least, expected only a few quarters ago, is proof of the Company’s entrenched position in its customers’ lives. In contrast, the National Restaurant Association in the U.S. recently predicted that 2021 industry sales would recover significantly versus 2020, but would still come in nearly (-15%) below 2019 levels.
On the Company’s most recent Analyst Day in December 2020, management took its longerterm expectations a bit higher, primarily driven by a modest expected improvement in sales versus its prior expectations. Considering smaller competitors went belly-up and the Company’s investments in enhanced capabilities further improved its competitive position, we believe this improvement in longer-term sales trends is a layup. We also believe the technological investments and the improved terms from landlords create obvious benefits for to an already attractive margin and return profile. Our bullishness on the Company has not wavered and, in fact, we feel better than we did about the Company’s business model over the next several years than we did when we bought the stock originally.”
