NEW YORK (TheStreet) -- Starbucks (SBUX) - Get Report is by far the largest coffee corporation in the world. The company now has a market cap over $70 billion and over 21,000 thousand stores in more than 65 countries. Starbucks was founded in 1971 by Jerry Baldwin, Zev Siegl, and Gordon Bowker. The small coffee company was purchased in 1987 by now famous CEO Howard Schultz. Since 1987, Starbucks has experienced what you could call "hyper-caffeinated" growth.

On March 18th, Starbucks announced it will split its stock two for one. This split is the result of the company's continued growth. Starbucks delivered in 2014 with 21% adjusted-earnings-per-share growth. Starbucks stock price had advanced nearly 30% this year, and nearly 300% in the past five years. Not all news is positive from Starbucks, however. The company's plan to help race relations in the U.S. has come under criticism.

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Rapid Growth Will Continue

Starbucks has grown earnings-per-share at 20% a year over the last decade. Despite its massive size, the company is expecting earnings-per-share growth over 15% a year going forward. The company has several strategies that will drive growth over the next several years:

  • New store openings
  • International expansion
  • Delivery
  • Teavana
  • Food, especially breakfast sandwiches, lunch sandwiches and small evening appetizers

Some potential Starbucks investors may think the company is nearing market saturation in the U.S. In Houston, there is an intersection with not one, not two, but three Starbucks on it (yes, this is real -- I have been there). To be fair, one of those Starbucks is inside a Barnes and Noble (with another just outside it and one across the street).

Still, by looking around, one would think Starbucks is nearing market saturation in the U.S. Internationally, however, Starbucks still has a long growth runway ahead for store expansion. In fact, the company is planning on expanding its store count by about 7% a year over the next several years. About two-thirds of the company's store expansion will come outside of the United States.

Starbucks future looks especially bright internationally.The company grew comparable store sales faster in its China-Asia-Pacific segment than in its U.S. segment in fiscal 2014. U.S. comparable store sales grew at 6%, versus 7% in the China/Asia-Pacific segment. Comparable store sales grew at 5% in the company's Europe/Middle-East/Africa segment. The combination of rising comparable store sales and rapid store expansion in international and emerging markets speaks to Starbucks long growth runway.

Starbucks Delivery

Starbucks has plans to offer coffee delivery. The company plans to offer delivery by partnering with Postmates, a food-to-consumer delivery company. In addition, Starbucks will also soon roll out its "Green Apron" delivery service where local baristas will deliver Starbucks coffee and food to nearby office buildings. These deliveries will likely be for fairly large orders only (or groups of individual orders to a large office building) to make them economical for the company. Starbucks delivery has long been one of the most requested services of the company. In 2015, Starbucks will test the real-world efficacy of the service.

Teavana Growth and Starbucks for Lunch and Dinner

Starbucks purchased Teavana at the end of 2012 for $620 million. Since that time, the company has focused on expanding its tea offerings, both brewed and pre-packaged, in Starbucks stores. Tea sales now account for about 10% of all Starbucks sales. Tea sales are growing faster than overall sales for Starbucks. The ready-to-drink tea industry as a whole is expected to grow 3% to 6% a year up to 2018. Starbucks should see its tea sales grow significantly faster thanks to the popular Teavana brand and the ever-expanding number of Starbucks stores.

In addition to tea, Starbucks has plans to significantly ramp up its food sales. In Starbucks' first quarter, breakfast food sales were up 29% and lunch sandwich sales were up 15%. The company already generates tremendous traffic to its stores from its coffee sales -- global traffic, already large, was up in low single digits in the first quarter. If the company can better entice customers to add food to their drink orders, the company will see comparable store sales rise significantly. The company's goal is to double food sales in the next 5 years. While ambitious, this goal is achievable. Starbucks plans to reach its food growth goal by:

  • Continuing to focus on breakfast foods
  • Add more and better lunch food options
  • Start serving "afternoon snacks" and dinner options at select locations

Starbucks and Race Relations

Starbucks CEO Howard Schultz has decided to try his hand at helping race relations in the U.S. While the idea is noble, the execution is flawed, as commentators have pointed out. The company's plan is to have baristas write " race together" on Starbucks cups and encourage a discussion. Starbucks has already received much negative backlash from the announcement. While this story leaves both Starbucks employees and investors scratching their collective heads, it will likely do little to impair long-term growth. (See Jim Cramer's recent interview with Starbucks CEO Howard Shultz on this issue.)

Valuation -- Is Starbucks Overvalued?

Starbucks is still growing rapidly. The company will likely hit its 15% a year earnings-per-share growth goals. Unfortunately, Starbucks stock is not cheap. The company trades at a price-to-earnings multiple of 28.5 (see chart below). While steep, this valuation multiple is not excessive for an extremely high quality company growing at 15% or more a year.

One way to think about Starbuck's valuation is to compare it to the price-to-earnings ratios of other high quality food companies. The price-to-earnings ratios and growth rates of several restaurant companies are shown below for comparison:

Company

Price-To-Earnings Ratio

Expected Growth Rate

Starbucks

28.5

15.0%

McDonald's

20.0

6.5%

Chipotle

47.6

13.0%

Domino's Pizza

35.7

11.0%

Based on the numbers above, Starbucks seems fairly priced compared to similar firms considering its strong growth potential. 

The Bottom Line for Dividend Investors

Starbucks currently pays a below average 1.4% dividend, Clearly, Starbucks is not a high yield stock for income oriented investors. However, dividends will double about every five years with the company's 15% expected growth rate. This means those who purchase Starbucks now will have a yield-on-cost of around 2.8% in 5 years, and 5.6% in 10 years if the company can maintain its growth rate. The low payout ratio makes it likely the company will grow dividends even faster than overall company growth.

With its low current dividend yield, but very likely fast dividend growth, Starbucks stock should appeal to a specific type of investor. Those in need of current income should look elsewhere. For those who are ten or more years away from retirement, the company's growing dividends could be a sizable source of income in years ahead.

This article is commentary by an independent contributor. At the time of publication, the author held MCD.