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.
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.
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.