Investing a mere $8 per week in the venerable S&P 500 Index may not initially dazzle, but funnily enough, such modest contributions can snowball into nearly $200,000 over 40 years, riding on the market’s reliable 10% returns.
Better prospects await those astute enough to pinpoint stocks boasting specific demarcators like eminent brands, burgeoning and sustainable dividends, and top-notch return on invested capital (ROIC), potentially nudging this historical return closer to the 12% echelon. Such an uptick would magnify those weekly $8 investments into a bountiful $344,000 treasure trove over the same period.
Starbucks: A Brew of Market-Beating Metrics
Cradling over 38,000 establishments worldwide – juxtaposing franchised against company-owned entities – Starbucks might seemingly approach the crescendo of its expansion narrative. But, basking in a hearty 8% sales surge during the maiden quarter this year and a steady 4% store count ascent protractedly, Starbucks’ ripening endeavors warrant keen-eyed investor attention.
Fueled by its towering brand supremacy, outshining luminaries like Walt Disney, Walmart, and even the voguish TikTok, Starbucks accentuated its rewards membership by a sprightly 13% to a lofty 34.3 million in Q1. Remarkable is this stature, given that companies anointed on the Kantar Brandz’s Top 100 Most Valuable Global Brands registry annually outpaced the S&P 500 by a two-percentage-point margin since 2006.
Furthermore, fresh off a Statista divulgence spotlighting Starbucks as the beloved coffee brand among Gen Z and Millennials, the allure of its caffeine concoctions may persist for eons.
Perched on a loyal 34 million-member fan base, Starbucks bequeaths a breathtaking 63% return on invested capital (ROIC). This bedrock of profitability, juxtaposing against its debt and equity, accents the firm’s shrewd capital exploitation on a global scale. Touting an ROIC seated within the uppermost quintiles of the Motley Fool Investable Stock Universe, analogous to Starbucks, an historical admonition endorses that such companies steer towards being a top-tier investment play.
Though shadowed by lingering China entwinements – circus to 17% of its store network – painting a geopolitical portrait of peril, the sundry negative vibes embracing Starbucks of late might be overstated, especially considering its currently alluring valuation vis-a-vis the preceding decade.
Starbucks pours forth a 2.4% dividend yield, near its historical zeniths yet aloof from its 4.1% earnings yield. Prospective stakeholders can anticipate the beatific continuity of Starbucks’ 13-year legacy of dividend elevation. While the pace of sales growth abates, the thriving dividends suffused with fiscal health, the dwindling share count, the stellar brand dominion, and the top-shelf ROIC concoct Starbucks as a delectable ensemble for $400 investors.
Hershey’s Relentless Zeal in Confronting a Challenging Landscape
Steering towards a sales expansion in the 2% to 3% corridor and a stagnant earnings-per-share (EPS) narrative in 2024, Hershey navigates an ongoing saga of underwhelming market verdicts. With its shares cascading 30% from the pinnacle, the company grapples with an array of operational roadblocks. Foremost among these is the meteoric ascent in cocoa and sugar prices peaking by 153% and 58%, respectively, since 2019, a scenario akin to climbing Everest sans supplemental oxygen.
Propelled by adverse atmospheric conditions in West Africa, the cocoa pricing crescendo – a 120% surge in the most recent 15 months – casts Hershey’s flat EPS envisage for 2024 in an alluring light, accentuating a 14% profit spike witnessed the past year.
Augmenting these pricing pangs, the company unfurled a slate of fresh capacity extension ventures while ushering in a novel enterprise resource planning system, stamping an enduring record high in capital expenditures (CapEx) unfathomed this epoch.
Notwithstanding these adversities, Hershey’s sustained a 17% net profit margin and a 22% ROIC. This Herculean feat paints the probable existence of a fortress-like moat surrounding the company’s operations, enabling it to mitigate the bulk of escalated expenses to patrons sans embarking on a crusade of trust erosion. As per a Statista brand cognizance survey, Hershey’s Reese’s, Hershey’s, and Kit Kat marques each clinched a top-five eminence among the most recognizable candy brands in the U.S. circa 2023.
Fueled by Hershey’s brand resonance and enduring profitability despite grappling with formidable headwinds, investors might fancy a scenario where the 14-year saga of dividend escalation prolongs. Brandishing a 2.5% yield that dips merely 48% into the company’s net profits, Hershey rotundly hiked its dividend by 15% in 2023.
Traded at a reasonable 21 times earnings, Hershey boasts an arsenal of market-beating indicators, akin to its consumer trade contemporary, Starbucks. These indicators, in tandem with an awaited unraveling of ingredient pricing jolts and CapEx allocations, etch Hershey as one of my venerated dividend stocks for a slot in my offspring’s burgeoning portfolio.
Are you hesitant about stashing $1,000 in Starbucks?
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Josh Kohn-Lindquist saunters with investments charm in Hershey and Starbucks. The Motley Fool dances a tango with Starbucks, Walmart, and Walt Disney. The Motley Fool flings a disclosure policy.
The views and opinions expressed herein are those of the author and do not reflect the stance of Nasdaq, Inc.
