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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Domino's Pizza, Inc. (NYSE:DPZ) has paid dividends to shareholders, and these days it yields 1.1%. Should it have a place in your portfolio? Let's take a look at Domino's Pizza in more detail.
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Domino's Pizza fit our criteria?
The current trailing twelve-month payout ratio for the stock is 25%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 28% which, assuming the share price stays the same, leads to a dividend yield of around 1.2%. In addition to this, EPS should increase to $9.41.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. The reality is that it is too early to consider Domino's Pizza as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Domino's Pizza has a yield of 1.1%, which is on the low-side for Hospitality stocks.
Now you know to keep in mind the reason why investors should be careful investing in Domino's Pizza for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. There are three important aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for DPZ’s future growth? Take a look at our free research report of analyst consensus for DPZ’s outlook.
- Valuation: What is DPZ worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether DPZ is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.