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After 5 Years, I Sold
Published 24 days ago • 3 min read
What do you do when a stock you've held for 5 years starts paying out more money than it makes? That's exactly what happened with my Starbucks (SBUX) investment.
My very first Starbucks share cost me $83.72 back in November 2019. That share has paid me $11.22 in dividends for a total return of 19% - pretty bad when the boring old S&P 500 had a total return of 119% over the same time!
Some of the main reasons for selling after their Q325 Earnings:
Their dividend payout jumped from 75% to 137% of free cash flow - they're paying out more than they actually make
Sales at existing stores have dropped for six straight quarters
Operating cash flow fell from $4.6 billion to $3.4 billion in one year
They earned 50 cents per share vs Wall Street's expectation of 65 cents
They're losing money in China due to price competition and considering selling the China business
Management can't even predict what will happen this year
They're spending big on CEO Brian Niccol's "Back to Starbucks" turnaround plan with no guarantee it'll work
Someone commented that I forgot Starbucks is basically a bank because of their $1.9 billion in gift card money. That's true - it's like free money they can use. But they still have $14 billion in debt, so even if every gift card got used tomorrow, it would only cover 13% of what they owe.
Heck, it wouldn't even cover their current debt payments of $2.9 billion!
The bottom line? The business keeps getting worse, the dividend could get cut, and my only reason for holding was 'people still buy coffee there.' That's not good enough anymore.
We went a little bit deeper in the current fundamental analysis in the YouTube video.
If you have bought or sold Starbucks or you think I'm just wrong, I'd love to hear it.
Hit reply — I read and reply to every message!
Disclaimer: This is not investment advice, just one person's opinion that may be incorrect. Do your own research before making any investment decisions.
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