Last update on 2024-06-27

Dominos Pizza (DPZ) - Dividend Analysis (Final Score: 4/8)

Analyze the performance and stability of Domino's Pizza (DPZ) dividend policy with an 8-criteria system. Final Score: 4/8. Stay informed on dividend sustainability.

Short Analysis - Dividend Score: 4

We're running Dominos Pizza (DPZ) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an important metric for investors seeking income in the form of dividends

Domino's Pizza (DPZ) boasts a dividend yield of 1.1741%, higher than the industry average of 0.93%. Historically, its yields have been erratic, with substantial peaks and zero payouts in some years. This current yield demonstrates improved stability and is promising for income-focused investors, especially given its competitive edge against industry benchmarks. Nonetheless, the company's past irregularities highlight potential risks. Combining a strong recent stock price of $412.23 and a noteworthy dividend per share of $4.84, today's trend reflects a beneficial yet cautiously optimistic dividend yield scenario for DPZ.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate is an important indicator of how a company's dividends have increased over time, and a rate higher than 5% over 20 years suggests strong and consistent growth.

Looking at the Dividend Ratio for Domino's Pizza (DPZ), we see substantial volatility and some negative values, such as -100% in 2008 and -73.3333% in 2013. The data does not show a consistent growth pattern; instead, it reveals fluctuations that do not support the trend of a stable increase of over 5%. The average dividend ratio of 155.83% is misleading due to these fluctuations, as it includes extreme values. This inconsistent trend is not favorable for dividend growth rate assessment as investors typically seek stable and predictable increases.

Average annual Payout Ratio lower than 65% in the last 20 years?

Criterion 1.2: Average Payout Ratio lower than 65% in the last 20 years and why it is important.

The Average Payout Ratio for Dominos Pizza (DPZ) over the last 20 years is 135.64%. This is considerably higher than the targeted 65%. This trend is considered bad for several reasons. Firstly, an excessively high payout ratio suggests that DPZ may be allocating a substantial portion of its earnings towards dividends. This leaves fewer resources for reinvesting into the business. Secondly, in years like 2007 and 2012, the payout ratios were exceptionally volatile, reaching levels like 2288.14% and 157.48%, respectively. High volatility in payout ratios may indicate financial instability or irregular earnings, both of which are concerning for dividend sustainability. Therefore, DPZ's historical high payout ratios suggest that the company might be over-distributing its earnings to shareholders, which could potentially undermine long-term growth and financial stability.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings signifies strong financial health as it suggests the company can sustain its dividend payments without jeopardizing future growth.

Domino's Pizza demonstrates a solid track record of earnings sufficiently covering its dividends. The ratios have consistently remained healthy, ensuring dividends remain sustainable. Between 2003 and 2023, the Dividend Coverage Ratio has generally hovered between 0.25 and 0.35, with few fluctuations. For instance, in 2022, a Dividend Coverage Ratio of 0.348 suggests that Domino's had a sufficient earning reserve to pay dividends 1.87 times over, indicating strong financial robustness. A few outlier years, such as 2007, reflect the year of financial initiatives or one-time payouts, seen in the exceptionally high ratio of 22.881 in 2007. Overall, the consistent ratio shows Domino's solid strategic management in aligning dividend payouts with earnings, fostering investor confidence.

Dividends Well Covered by Cash Flow?

Why is it important for a company's dividend to be well covered by its free cash flow?

Free cash flow represents the cash a company generates after accounting for cash outflows to support operations and maintain capital assets. It is a crucial measure of a company's financial performance and health. For dividends to be sustainable, they should ideally be paid out of free cash flow rather than by taking on debt or depleting cash reserves. This ensures the company's long-term viability and ability to continue paying dividends.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are crucial for income-seeking investors because they signify reliability, making the stock a trustworthy source of regular income.

Dominos Pizza (DPZ) has had a somewhat erratic dividend policy over the last 20 years. For several years (2007, 2009-2011), DPZ did not pay any dividends. This represents a significant instability in dividend payments which may deter income-seeking investors. Despite this inconsistency, DPZ's dividends per share have generally increased, especially over the last decade, rising from $0.8 in 2013 to $4.84 in 2023, indicative of strong financial performance. Since the dividend did not drop by more than 20% in any given year, we can infer that recent trends are more favorable. Hence, though the earlier part of the 20-year span reveals volatility, the later years demonstrate considerable stability and growth, making the current trend promising for investors seeking reliable dividend income.

Dividends Paid for Over 25 Years?

The consistency of dividend payments for over 25 years showcases a company's reliability in returning value to shareholders.

The data provided reveals that Domino's Pizza has not consistently paid dividends for over 25 years. In fact, dividend payments began in 2004 and have intermittently varied over the years, with some years showing no dividend payments at all (e.g., 2008-2010). This inconsistency might be seen as a red flag for income-focused investors who prioritize a reliable stream of dividends. It should be noted, however, that since 2012 dividends have been paid more consistently with a steady increase. This positive trend suggests that while Domino's might have had a rough start in its dividend policy, it has shown commitment to returning value to shareholders more recently. Overall, even though the 25-year criterion is not met, the last decade gives a more favorable impression.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Reviewing the stock repurchase trends over the past two decades, it is clear that Domino's Pizza has actively engaged in repurchasing its shares. Since 2005, the company has steadily reduced its outstanding shares from approximately 68.5 million in 2005 to 35 million in 2023. This downward trend is beneficial as it indicates that Domino's is committed to returning value to its shareholders by reducing share dilution. The average number of shares repurchased per year stands at 112.244 million, enforcing the view that the company maintains a reliable practice of stock repurchase. The consistent buybacks in most of the past 20 years, except for a few years, support investor confidence and create long-term shareholder value. This trend is notably positive for shareholders.