1. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 69
Although it might not align with the classic notion of a full-service restaurant, Starbucks Corporation (NASDAQ:SBUX) manages an extensive network of coffeehouses around the globe, offering a range of drinks and food items for customers. The company reported a strong cash position in its recently-announced fiscal Q3 2024 earnings. Through the first three quarters of the year, it generated over $4.5 billion in operating cash flow, up from $4.06 billion in the same period last year. This solid cash generation allowed the company to pay dividends for 57 consecutive quarters, with a compound annual growth rate of 20% during this period. Moreover, it has raised its payouts for 13 years in a row. It currently offers a quarterly dividend of $0.57 per share and has a dividend yield of 3.03%, as of August 6.
Since the start of 2024, Starbucks Corporation (NASDAQ:SBUX) is down by over 19.5%. The stock was performing well compared to the market until the pandemic hit, which led to a sharp decline in its share price that hasn’t fully recovered. This may be attributed to the company’s difficulty in adjusting to changing trends, as well as high prices driven by inflation, which are driving customers away. Diamond Hill Capital also shed light on this aspect of SBUX in its Q2 2024 investor letter. Here is what the firm has to say:
“Starbucks Corporation (NASDAQ:SBUX) is the global leader in the coffee industry. Given its significant scale, we believe Starbucks can maintain its average ticket growth and drive decent traffic growth, which should allow for some margin expansion. While macroeconomic and competitive pressures remain intense in China, the country accounts for a minimal percentage of today’s earnings, and we believe the current valuation embeds little to no contribution from China over the long term, which we view as too cynical. As the share price declined recently amid near-term concerns surrounding store sales in North America and China, we capitalized on what we considered an attractive entry point.”
Starbucks Corporation (NASDAQ:SBUX) remained popular among elite funds at the end of Q1 2024, with hedge fund positions growing to 69, from 59 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of nearly $2.7 billion. Among these hedge funds, Fisher Asset Management was the company’s leading stakeholder in Q1.
While we acknowledge the potential of SBUX as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than SBUX but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
