I uncover a high-quality dividend growth stock that appears to be undervalued each week for Daily Trade Alert, which is a site that focuses on dividend growth investing, stocks, and unique investment opportunities. I’ve been writing for them for years now, and they’re just great over there. Each week, I publish an excerpt of my work, when it’s fresh off the press. That way, you readers are given the opportunity to check it out. The content is totally free. I hope you enjoy!
I used to have this terrible enemy.
My enemy would follow me around everywhere I went, almost forcing me to make bad choices, only to feel great when I went and did the wrong thing(s) in life.
I would waste money on frivolous things. My enemy would feel great in the moment. And I would feel terrible later.
It took me years to finally shake this enemy and reclaim my life for myself.
You want to know who this enemy was?
Image courtesy of: Stuart Miles at FreeDigitalPhotos.net.
Hi Jason, Unfortunately I have never owned SBUX. Considered it many times, but always thought the yield was too low, valuation too high and the cost of a cup to much for the average “Jo”. I’m enjoying a cup from Kenmore coffee maker right now that costs just pennies to make. Would you expect anything else from an “FI” guy? My mistake of course and gotta keep learning from them. Thanks for the detailed analysis. Great work as always. Tom
Tom,
I hear you on the frugality! 🙂
That said, I really enjoy my time at the coffee shop. But I’m also in a pretty unique position in life. And I spend a lot of time writing. If I were still hustling toward financial independence, it’d be different. As it stands, the coffee shop is my “happy place”.
Thanks for dropping by.
Cheers.
Hi Jason,
Good thesis. I do like SBUX but haven’t picked up any in my portfolio thus far.
I’m impressed that you can come up with new ideas for undervalued stocks every week in such a rich overall market! Aren’t you worried that you are going to start repeating yourself since there are only a finite number of companies that are established dividend growers?
By the way, have you checked out the company GNTX (they make auto dimming mirrors) at all? Or CRBL? Both have been raising dividends but only for a short window of time.
Have a great week ahead.
-Mike
Mike,
I’ll sometimes repeat an idea, but I try to do that no more than once every six months. So I may write about the same stock twice in one year. But I’ll generally pound the table until the valuation is no longer compelling. I actually shot a video on HBI recently. And I was noting how it reminded me of VFC, which was undervalued for some time there (and I was repeating it every 5-6 months). But then the price caught up to value, so it’s no longer a candidate for the series.
I haven’t looked at GNTX. Maybe I will. My first thought is whether or not mirrors will even be necessary 20 years from now (due to self-driving cars).
I think you mean CBRL for the other stock. It’s not on my radar. I looked at it many years ago. Regret passing it up. I just kind of wondered whether or not younger people would still be eating there in the future, but I do sometimes look way too far out. Nothing wrong with an investment being very good for 5-10 years.
Hope you also have a great week! 🙂
Best wishes.
Hi Jason,
I am big fan of your journey and I recently read your dividend mantra book. I really enjoyed it! I’m eagerly waiting for your upcoming series on valuation and your next book!
I would just like to ask a question on your DDM valuation of SBUX.
In your model you assume a 10 year dividend growth of 14% plus a 7.5% terminal growth. However, I was under the impression that it is more appropriate for stable/mature companies (which SBUX will be in 10 years) to have a terminal growth rate in line with the total economic growth rate (around 2% average for US and 3% global average). If so, assuming that SBUX will grow at a terminal rate of 2.5% after the first 10 years (average between US/world economic growth), SBUX will not be able to grow its dividend by 7.5% per year because eventually the discrepancy between earnings and dividend growth will lead to a dividend payout of 100% (unless cut first).
I believe that this point brings your DDM to a fair value of $88 whereas Morningstar and CFRA fair values are more conservative. Please correct me if I’m wrong.
Cheers,
Jack
Jack,
I’ve talked about that quite a bit in the valuation videos I do with DTA, which can be accessed via the series of articles.
But I don’t see why Starbucks will suddenly stop growing in 10 years. When you’re looking at that terminal rate, it’s essentially a rounding error after a few decades. Something like 40 or 50 years. So when I’m using a “terminal” rate, it’s basically just a number I care about for the length of my life. I’m not immortal, unfortunately. And so I don’t really care what Starbucks will be doing in 1,000 years. The question then becomes whether or not a company can grow its dividend at, say, 6% or 7% or 8% 40, 50, or 60 years on. And, well, the answer to that question is yes, as there are quite a few companies doing just that. In fact, I own a slice of a number of them. If it were a thing where every company were growing its dividend at 2% after a 10-year period (or even a multi-decade period, for that matter), that would totally kill much of the appeal of dividend growth investing.
But I’d recommend watching the videos I’ve put together for DTA. I explain that in almost every single one of them. 🙂
As for coming out ahead on this one, that happens sometimes. I came out way under with my intrinsic valuation estimation of HBI last week, which also happens. That’s why I average the numbers out. And averaging them out generally gives a pretty reasonable valuation conclusion. Moreover, it’s important to keep in mind that these valuation numbers are just estimates. There’s no possible way to say with any certain accuracy that $X is the fair value of any business in the world.
Hope that helps!
Best regards.