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Income Investors Find Attractive Opportunity with Domino’s Pizza Delivery

Key Points
Domino’s Pizza is experiencing a minor decline after a lukewarm earnings report, but a major decline is not expected.
This company is a good investment for dividend growth investors who are looking to hold onto their stocks.
The stock is receiving favorable ratings and targets from analysts and institutions, which have been increasing since the second quarter.
We prefer five other stocks over Domino’s Pizza.
Domino’s Pizza NYSE: DPZ may not have a high dividend yield, but what matters more is the consistent growth in its dividend distribution. The company only pays a small portion, around 35%, of its earnings as dividends. It maintains a strong cash flow and has a positive outlook for continued growth in dividend distribution. Domino’s has already increased its dividend payment for 11 consecutive years, putting it on par with Dividend Achievers and future Dividend Aristocrats.
The company’s international growth story and its 18% compound annual growth rate in dividend distribution indicate that investors can expect dividends to continue growing at a rate higher than inflation in the coming years.
Domino’s Pulls Back On Mixed Results
After the release of its Q3 earnings report, Domino’s Pizza stock is experiencing a decline. Although total revenue is down compared to the previous year and slightly below expectations, positive internal factors, such as the company’s exit from Russia, help offset the weak performance. The decrease in net revenue is mainly due to lower market basket item pricing and a slight decrease in US volumes.
While US comparable sales declined by 0.6%, International Growth and foreign exchange tailwinds resulted in a 4.9% increase in retail sales. Excluding Russia, the company achieved a 5.1% growth in retail sales, and the international growth is expected to continue. Strong GDP growth in international and emerging markets is expected to support Domino’s Pizza’s results until 2024.
The positive margin news is also beneficial for dividend growth investors. A one-time event had a positive impact of $0.59 on the bottom line, but even without this adjustment, the company’s reported earnings of $4.18 are up 50% compared to the previous year and exceed the consensus estimate by more than $0.25. The GAAP EPS is $0.89 higher than the consensus, and the company’s earnings strength is projected to continue.
Although the guidance provided is weak, it still supports the long-term outlook and the growth of dividend distribution. The company expects store count growth to be slightly below the low end of the target range, with revenue falling below the mid-point of the range, but the margin is expected to remain stable.
Analysts and Institutions Favor Domino’s Pizza
Domino’s Pizza is favored by analysts and institutions because of its capital return program. In addition to paying a solid dividend with potential for growth, the company also engages in share buybacks. In Q3, the company repurchased $90 million worth of shares, leading to the retirement of those shares. The company still has $200 million remaining under the current authorization, which is approximately 1.6% of its market capitalization.
According to 25 analysts tracked by Marketbeat, Domino’s Pizza is rated as a Moderate Buy. This rating has improved compared to the previous quarter and the previous year’s Hold rating. While the price target has decreased compared to the previous year, it is trending higher among other restaurant stocks compared to the previous month and the previous quarter. The price target suggests a potential upside of about 12% from the pre-release action, in addition to the dividends and share repurchases.
The Technical Outlook: Domino’s Pulls Back to Critical Support
The price of Domino’s Pizza has significantly declined from its highs during the COVID pandemic, but it has found support. The post-release action caused the market to decline by approximately 2.5%, but it is still well above the critical support level. The critical support level is around $320, and it has been confirmed five times since 2020. The recent action indicates that the support level is moving higher, and if this trend continues, the market should confirm the support level again soon. If not, the stock may fall to the $320 level, where it would present a better value and yield.
MarketBeat tracks the top-rated and best-performing research analysts on Wall Street and the stocks they recommend to their clients on a daily basis. MarketBeat has identified five stocks that top analysts are quietly recommending to their clients to buy now, before the rest of the market catches on. Unfortunately, Domino’s Pizza is not on that list. Although Domino’s Pizza currently has a “Moderate Buy” rating among analysts, these top-rated analysts believe that these five stocks are better investment options.

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