Three Days Left Until Domino's Pizza Enterprises Limited (ASX:DMP) Trades Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Domino's Pizza Enterprises Limited (ASX:DMP) is about to trade ex-dividend in the next three days. You will need to purchase shares before the 25th of August to receive the dividend, which will be paid on the 10th of September.

Domino's Pizza Enterprises's next dividend payment will be AU$0.53 per share, and in the last 12 months, the company paid a total of AU$1.19 per share. Looking at the last 12 months of distributions, Domino's Pizza Enterprises has a trailing yield of approximately 1.4% on its current stock price of A$85. If you buy this business for its dividend, you should have an idea of whether Domino's Pizza Enterprises's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Domino's Pizza Enterprises

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Domino's Pizza Enterprises paid out 74% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (55%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Domino's Pizza Enterprises's earnings per share have been growing at 17% a year for the past five years. Domino's Pizza Enterprises is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Domino's Pizza Enterprises has lifted its dividend by approximately 24% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is Domino's Pizza Enterprises worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Domino's Pizza Enterprises's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 74% and 55% respectively. All things considered, we are not particularly enthused about Domino's Pizza Enterprises from a dividend perspective.

So while Domino's Pizza Enterprises looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for Domino's Pizza Enterprises and you should be aware of them before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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