Domino's Pizza (DPZ) just shared its third-quarter earnings for 2024, and it's got dividend hunters talking. The results were a bit of a mixed bag — earnings were better than expected, but revenues didn't quite hit the mark. The pizza chain reported earnings per share (EPS) of $4.19, beating the average Wall Street forecast of $3.71, while revenues came in at $1.08 billion, just under the $1.1 billion expected.
This comes as the fast-food industry grapples with inflation and shifting customer habits. Still, Domino's has held its ground, reporting a 5.1% bump in global sales from last year. On top of that, they've maintained a solid dividend record, most recently announcing a $1.51 per share payout. With over a decade of consistent dividend growth and a current yield of 1.41%, DPZ is worth a look for investors in search of steady passive income.
With the shares currently down about 21% from annual highs, here's a closer look at why now may be a good time to scoop up shares of this dividend stock.
Domino's Q3 Earnings and Valuation Insights
Domino's Pizza (DPZ), the biggest pizza chain in the world, has nailed its success with a simple but effective game plan. They sell through both online platforms and franchise stores, using top-notch tech to make things smooth for customers and efficient for operations. With over 17,000 locations spread across 90 countries, Domino's dishes out more than 3 million pizzas every day, showing just how popular they are globally.
After Domino's released its Q3 earnings report, the results may have been mixed - but it didn't slow down the stock too much. The shares dipped 1% on Oct. 10, then bounced back by more than 5% the next session. Support at the round $400 level has been key in recent months, and a test of this area may have helped to bring out some post-earnings dip buyers.
DPZ's forward price/earnings (P/E) ratio of 25.58 is about 15% lower than its 5-year average P/E, suggesting the stock is reasonably valued at current levels, compared to its historical averages. This discount becomes even more apparent when considering the stock's 52-week performance and its historical valuation levels.
For income-focused investors, Domino's dividend story is equally appetizing. The company's quarterly dividend of $1.51 per share is backed by a modest payout ratio of 34.25%, and supported by healthy cash flows. Net cash from operating activities totaled $446.9 million during the first three quarters of fiscal 2024, up from $422.1 million in the same period of 2023. Free cash flow rose to $376.1 million in the first three quarters of fiscal 2024, compared to $362.9 million in 2023.
Domino's also repurchased $190 million worth of stock during the most recent quarter.
The Fundamentals Fueling Domino's Growth
CEO Russell Weiner highlighted the success of their "Hungry for MORE" initiative, with Domino's reporting its fourth consecutive quarter of profitable order count growth in the U.S. and on track for its 31st year of same-store sales growth internationally.
Domino's is cooking up some exciting growth prospects, starting with its latest menu innovation. The company recently launched two new Mac & Cheese offerings: a classic 5-Cheese and a Spicy Buffalo 5-Cheese variant. This strategic move not only diversifies Domino's menu but also taps into the comfort food trend, potentially attracting a broader customer base and driving sales growth.
Looking ahead, Domino's is aiming for about 6% growth in global sales and around 8% growth in income from operations in 2024, even with the tough economic climate. Plus, they're planning to open 800 to 850 new stores worldwide, showing confidence in their expansion strategy. The chain is eyeing bigger gains for 2026-2028, targeting over 7% growth in sales and more than 8% in income.
Analyst Insights on Domino's Potential
Analysts seem to think Domino's is a good bet. Out of 29 analysts, 16 say it's a "Strong Buy," two suggest a "Moderate Buy," and 10 recommend a “hold.” Only one analyst thinks it's a "strong sell." The average price target from this group is $483.03, which is about a 12.8% increase from Wednesday's close.
Goldman Sachs analyst Teddy Farley is particularly upbeat, keeping a "Buy" rating with a price target of $515 after earnings. He cited Domino's strong digital sales and smart rewards program as big growth drivers, but noted that slower progress with DPZ's fortressing strategy and heightened fast-casual competition could constrain results.
Overall, despite the possibility of some near-term bumps in the road after its mixed Q3 results, analysts are staying bullish on Domino's shares moving forward.
Why DPZ Looks Appealing Right Now
Domino's presents a compelling case for investors looking to capitalize on both growth and income. With its massive footprint and brand recognition, along with innovative menu additions and strategic initiatives, the company is well-positioned to continue its upward trajectory - even in a challenging macro environment.
Despite some recent volatility, the stock's attractive valuation and consistent dividend growth make it an appealing option for value and income investors right now. Analysts see significant upside potential, suggesting that now might be the perfect time to grab this dividend stock at a discount and enjoy a slice of future gains.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
