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Domino's Pizza, Inc. (NASDAQ:DPZ) will increase its dividend on the 28th of March to $1.74, which is 15% higher than last year's payment from the same period of $1.51. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.
Check out our latest analysis for Domino's Pizza
Domino's Pizza's Payment Could Potentially Have Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Domino's Pizza's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to expand by 26.6%. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.
Domino's Pizza Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was $1.00, compared to the most recent full-year payment of $6.04. This means that it has been growing its distributions at 20% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Domino's Pizza has been growing its earnings per share at 12% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Domino's Pizza Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Domino's Pizza that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.