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Domino's Pizza Enterprises' (ASX:DMP) Dividend Will Be Reduced To A$0.681

·3 min read

Domino's Pizza Enterprises Limited (ASX:DMP) is reducing its dividend from last year's comparable payment to A$0.681 on the 15th of September. However, the dividend yield of 2.4% still remains in a typical range for the industry.

See our latest analysis for Domino's Pizza Enterprises

Domino's Pizza Enterprises' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Domino's Pizza Enterprises was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Over the next year, EPS is forecast to expand by 65.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

historic-dividend
historic-dividend

Domino's Pizza Enterprises Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was A$0.26, compared to the most recent full-year payment of A$1.57. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year 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 Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Domino's Pizza Enterprises has impressed us by growing EPS at 9.6% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On Domino's Pizza Enterprises' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the current distribution levels might be a bit unsustainable, we can't deny that until now it has been very stable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Domino's Pizza Enterprises that investors should know about before committing capital to this stock. Is Domino's Pizza Enterprises not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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