The Most Obvious Reason to Buy Domino's Pizza (DPZ) Stock Before It Reports Earnings on July 20 Is Hiding in Plain Sight
Key Points
Domino's is the world's biggest pizza seller.
It has struggled lately, but it's still growing, and pays a solid and growing dividend.
- 10 stocks we like better than Domino's Pizza ›
There are thousands of companies that most of us know little about -- which can make them more risky investments for us. Some, though, are quite familiar -- like Domino's Pizza (NASDAQ: DPZ).
The company is scheduled to deliver its second-quarter report on July 20. Should you invest in Domino's before that earnings release?
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Meet Domino's
Domino's was launched back in 1960, and it's now the world's largest pizza chain, with more than 22,300 locations in more than 90 international markets. It rakes in more than $19 billion annually -- with just about all of that coming from franchisees, who own and operate 99% of Domino's stores.
It's growing, too, though not rapidly. Domino's first-quarter results featured year-over-year global revenue growth of 3.4%, with income from operations rising 7.9% on a currency-adjusted basis. That 3.4% looks good, but it was mostly due to new locations opening -- 180 of them on a net basis. When you look at sales from U.S. locations open a year or more, growth was just 1%.
Why invest in Domino's?
A key reason to consider investing in Domino's is its valuation. Its forward price-to-earnings (P/E) ratio was recently 16, based on analysts' consensus expectations, well below its five-year average of 25. That suggests the stock is undervalued.
That's not enough of a reason to buy it, though, so consider, too, that it's a dividend payer. At recent share prices, its dividend yield was 2.6%, more than twice that of the S&P 500's (SNPINDEX: ^GSPC) 1.1% yield. Better still, Domino has more than doubled its annual payouts over the past five years. And when you add in the effect of stock buybacks, the total shareholder yield is around 6.1%. To me, that's compelling.
Meanwhile, Domino's is forecasting global sales growth in the mid-single-digit percentages, and it has been investing significantly in its website and its app to boost digital sales -- which accounted for 85% of all sales in the U.S. last year.
Give Domino's a closer look, because while it may not be a fast grower, it's likely to reward shareholders well via growing dividends and stock repurchases.
Should you buy stock in Domino's Pizza right now?
Before you buy stock in Domino's Pizza, consider this:
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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Domino's Pizza. The Motley Fool has a disclosure policy.
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