Stock Analysis
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- NYSE:DPZ
Dividend is a Modest Topping on the Thick Crust of Domino's Pizza (NYSE:DPZ)
After dropping almost 5% on the earnings release, Domino's Pizza, Inc ( NYSE: DPZ ) rose faster than dough in the oven.
Additionally, the company declared the quarterly dividend, which we will examine in this article.
Check our latest analysis on Domino's Pizza.
Earnings Results
- Non-GAAP EPS: US$3.24 (beat by US$0.14)
- GAAP EPS : US$3.24 (beat by US$0.13)
- Revenue: US$997.99m (miss by US$32.01m)
Furthermore, the company repurchased and retired 391,007 shares during the quarter.
It was a tough comparison versus the record year of 2020 when Covid-19 had people eating record amounts of pizza, as the U.S. same-store sales shrank by 1.9%. Comparable sales in the U.S. were still up 15.6% against the " normal " levels from 2019. CEO Ritch Allison reflected on the situation, saying that the company is ready to face the headwinds of the inflation and staffing situation.
Meanwhile, the international situation is better, as the same-store sales climbed 8.8% in the quarter. Despite the challenging situation in the U.K, the company announced a plan to hire 8,000 drivers for the holiday season.
The Dividend Analysis
The company declared a US$0.94/share quarterly dividend, giving it a forward yield of 0.8%. It is payable on December 30 for shareholders on record on December 15.
With a 0.8% yield and a nine-year payment history, investors probably think Domino's Pizza looks like a reliable dividend stock.A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results.
The company also bought back stock during the year, equivalent to approximately 7.1% of the company's market capitalization at the time.When buying stocks for their dividends, you should always run through the checks below to see if the dividend looks sustainable.
Click the interactive chart for our full dividend analysis
Payout ratios
Dividends are typically paid from company earnings. Domino's Pizza paid out 27% of its profit as dividends over the trailing twelve-month period.A medium payout ratio strikes a good balance between paying dividends and keeping enough back to invest in the business.Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.
Another vital check we do is to see if the free cash flow generated is sufficient to pay the dividend.Domino's Pizza paid out 22% of its free cash flow as dividends last year, which is conservative and suggests a sustainable dividend.
It's positive to see that Both profits and cash flow cover domino's Pizza's dividend since this is generally a sign that the dividend is sustainable. A lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Dividend Volatility
One of the major risks of relying on dividend income is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well.
Looking at the last decade of data, we can see that Domino's Pizza paid its first dividend at least nine years ago.The dividend has been relatively stable over the past nine years, which is great to see - although we usually like to see the dividend maintained for a decade before giving it full marks, though.
During the past nine-year period, the first annual payment was US$0.8 in 2012, compared to US$3.8 last year.Dividends per share have grown at approximately 19% per year over this time. Although present for less than a decade, the dividend is growing at a nice rate.
Dividend Growth Potential
While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term.It's good to see Domino's Pizza has been increasing its earnings per share by 28% a year over the past five years.With high earnings per share growth in recent times and a modest payout ratio, we think this is an attractive combination if earnings can be reinvested to generate further growth.
Conclusion
Dividend investors should always want to know 3 things: affordability, consistency, and growth.
It's great to see that Domino's Pizza is paying out a low percentage of its earnings and cash flow.Next, earnings growth has been good, but unfortunately, the company has not paid dividends as long as we'd like.All things considered, Domino's Pizza looks like a prospect. At the attractive valuation, it could be a promising addition to any portfolio.
Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Domino's Pizza you should be aware of, and 2 of them are a bit concerning.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
What are the risks and opportunities for Domino's Pizza?
Domino's Pizza, Inc., through its subsidiaries, operates as a pizza company in the United States and internationally.
Rewards
Earnings are forecast to grow 7.57% per year
Risks
Debt is not well covered by operating cash flow
Negative shareholders equity
Further research on
Domino's Pizza
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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article 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.
Stjepan Kalinic
Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.
About NYSE:DPZ
Domino's Pizza
Domino's Pizza, Inc., through its subsidiaries, operates as a pizza company in the United States and internationally.
Average dividend payer and slightly overvalued.
