Must-know: Is Domino’s a good dividend stock?

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What is a dividend?

In the last part of this series, we mentioned that the company distributed $14 million in dividends to its shareholders. Dividends, which serve as a constant source of income, affect a shareholder’s investment decisions.  Here, we’ll look at Domino’s Pizza, Inc.’s (DPZ) dividend yield compared to its competition.

DPZ Dividend Yield 2014-10-17

Domino’s dividends

Domino’s dividend per share in 3Q14 was $0.25. This represents a $0.05 increase from $0.20 in the same quarter a year ago. Domino’s suspended dividends between 2008 and 2011, when U.S. was experiencing a recession and its aftereffects.

Dividends, which are paid in cash, come from a company’s ability to generate excess income. Excess income is a function of higher sales and stable costs. As of third-quarter end 2014, Domino’s had total cash of $30.9 million.

As of year end 2008 and 2009, Domino’s revenues declined by 3% and 1%, respectively. When a company stops or reduces its dividends, it’s not usually a good sign, and may mean that a company is having trouble generating excess cash.

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In the above chart, you can see that Domino’s closest peers, Yum! Brands, Inc. (YUM)—parent of Pizza Hut—and Papa John’s International, Inc. (PZZA), both have higher dividend yields of 2.44% and 1.31%, respectively. Yum! Brands, meanwhile, continued its dividend program throughout the recession, whereas Papa John’s resumed dividend distribution in 2013 only.

Darden Restaurants, Inc. (DRI) and McDonald’s Corporation(MCD) have the highest yields of 4.6% and 3.8%, respectively. And both are a part of the Consumer Discretionary Select Sector SPDR Fund (XLY), which also pays dividends. This ETF had a yield of 1.45% as of September 2014.

 

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