Domino's Pizza Enterprises' (ASX:DMP) Dividend Will Be AU$0.88

Domino's Pizza Enterprises Limited (ASX:DMP) will pay a dividend of AU$0.88 on the 17th of March. This payment means that the dividend yield will be 2.1%, which is around the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Domino's Pizza Enterprises' stock price has reduced by 34% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

See our latest analysis for Domino's Pizza Enterprises

Domino's Pizza Enterprises' Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Domino's Pizza Enterprises was paying out quite a large proportion of both earnings and cash flow, with the dividend being 112% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to expand by 11.9%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 87%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Domino's Pizza Enterprises Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from AU$0.26 to AU$1.74. This means that it has been growing its distributions at 21% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Domino's Pizza Enterprises' Dividend Might Lack Growth

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Domino's Pizza Enterprises has grown earnings per share at 15% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Domino's Pizza Enterprises' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Domino's Pizza Enterprises' payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Domino's Pizza Enterprises that investors should take into consideration. Is Domino's Pizza Enterprises not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.