So far this year, Starbucks (SBUX) - Get Starbucks Corporation Report stock has gone cold, falling nearly 12%, despite the fact that the company has either beaten or met analysts' earnings estimates in the past four quarters.
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It isn't so much the bottom line that has been causing nervousness, but rather it is the top line. Starbucks' revenue has slowed and missed analysts' expectations in the past three quarters, while same-store sales have fallen short of the consensus projections in the past two quarters.
That has raised fears of a bogeyman that has long stalked Starbucks: that the coffee business is saturated.
But this fear is way overdone, and Starbucks remains a great long-term investment. There are a few reasons why it still has many years of growth ahead.
For one thing, even though it seems impossible to walk down the street in any reasonably sized U.S. city without passing the chain's green and white logo, that is far from the case in many parts of the world.
Consider sub-Saharan Africa, where Starbucks has precisely one store: in Johannesburg, South Africa, which opened in April.
The company's prospects on the continent look promising, with household spending in Africa expected to increase at a 3.8% annual rate until 2025, when it will hit $2.1 trillion, according to consulting firm McKinsey.
Africa's workforce is also expected to eclipse those of both China and India by 2034, and the continent will urbanize faster than any other place on the planet, according to McKinsey.
Starbucks' latest quarterly earnings report also boasted something for which plenty of other chains are starving: good news from China.
The country was Starbucks' fastest-growing market in terms of same-store sales, with a 7% year-over-year increase. That underscores the company's expansion plans in China, where it has 2,300 stores and plans to open 500 more annually over the next five years.
Meantime, the company's embrace of mobile technology sets it up for strong long-term growth.
For example, its mobile order and pay service, through which customers can place orders in advance and skip the lineup, now accounts for 5% of U.S. transactions at Starbucks. And the company's loyalty rewards program boasts 12.3 million U.S. members, up 18% year over year in its fiscal third quarter.
Starbucks is updating its drive-thru service to better compete with domestic rivals such as Dunkin' Brands (DNKN) - Get Dunkin' Brands Group, Inc. Reportand McDonald's (MCD) - Get McDonald's Corporation (MCD) Report . It is also leveraging mobile order and pay's success by testing curbside pick-up at a store in Washington State.
These moves dovetail with the company's plan to expand to areas where it has less of a presence, such as suburban cities, where the car is still king. At the same time, Starbucks is tapping into new downtown pockets with smaller-format stores -- essentially walk-throughs -- that are cheaper to operate and less likely to cannibalize existing outlets' sales.
Those are the long-term trends. In the short run, Starbucks stock could get a nice pop from a big dividend hike.
In last year's fourth quarter, the company raised its quarterly payout by 25%, following a 23% increase the year before.
With a reasonable payout ratio, which is the percentage of earnings paid out as dividends, of 42.3%, there is plenty of room for management to roll out another big increase in the coming weeks. Starbucks shares yield 1.5%.
The stock isn't cheap compared with the overall market, with a price-earnings ratio of 28, but that is about in line with its industry at 26.2. The average 12-month price target from analysts covering the stock stands at $65.50, which would represent a 23.4% gain.
So investors who have been keeping Starbucks on their watch lists should consider adding the stock to their portfolios before its dividend gets another big jolt.
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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.