Domino's Pizza Group (LON:DOM) Has Announced A Dividend Of £0.035

The board of Domino's Pizza Group plc (LON:DOM) has announced that it will pay a dividend on the 27th of September, with investors receiving £0.035 per share. This makes the dividend yield 3.7%, which is above the industry average.

See our latest analysis for Domino's Pizza Group

Domino's Pizza Group's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Domino's Pizza Group's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 33.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was £0.053, compared to the most recent full-year payment of £0.105. This works out to be a compound annual growth rate (CAGR) of approximately 7.1% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 3.4% a year for the past five years, which isn't massive but still better than seeing them shrink. Domino's Pizza Group is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Domino's Pizza Group's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. To that end, Domino's Pizza Group has 4 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.