Warren Buffett Buys a Dividend Stock Up 4,400% in 15 Years, but Sends Wall Street a $348 Billion Warning

In 1965, Warren Buffett took control of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). Its stock price has since increased at 20% annually, while the S&P 500 (SNPINDEX: ^GSPC) has returned about 10% annually. That outperformance was due in large part to Buffett's brilliant decision-making with respect to stock purchases, acquisitions, and share buybacks.

Consequently, Buffett has earned a reputation as one of the greatest investors in American history. Yet, he has struggled to find buying opportunities in recent years. Berkshire reported a record $348 billion in cash and U.S. Treasury bills on its balance sheet in the first quarter.

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That is surprising because the S&P 500 fell into correction territory in March, but Berkshire kept building cash. The most obvious explanation is Buffett considered most stocks too expensive despite the drawdown. In that sense, he sent Wall Street a $348 billion warning: Stocks could fall further as tariffs and economic uncertainty weigh on the market.

However, Berkshire did invest some money in the first quarter. It added to its position in Domino's Pizza (NASDAQ: DPZ), a dividend stock that returned 4,400% over the last 15 years. Here's what investors should know.

Image source: Getty Images.

Domino's is the largest quick service pizza company in the world

Domino's is the largest pizza company in the world, a position it earned by focusing on value and innovation. For instance, the company streamlined its supply chain in recent years by moving dough production to central facilities equipped with robots. That not only drives cost savings, but it also keeps the customer experience consistent across different stores.

Also, Domino's is on the cutting edge of restaurant technology with anywhere ordering and pinpoint delivery, which let customers place orders through unusual channels like text message, and receive those orders in atypical locations like beaches and baseball parks. The company also uses artificial intelligence to anticipate online orders to speed up the pizza-making process, visually inspect orders for accuracy and quality, and surface insights from customer comments left on social media.

Beyond that, Domino's consistently and effectively uses promotional cycles and menu innovation to engage consumers. It has already run several deals this year featuring 50% discounts, and recently added parmesan stuffed crust pizza to its menu. CEO Russell Weiner said those promotions "broke through industry clutter," and he expects stuffed crust to drive market shares gains for the company.

In addition, the company last year partnered with Uber Eats and this year partnered with DoorDash to expand its reach. Domino's will still handle its own delivery, keeping control over every aspect of its supply chain. But Uber and DoorDash are the two biggest restaurant food ordering platforms in the U.S., which means they could be a significant source of demand.

Domino's has raised its dividend for 12 straight years, but the stock is expensive

Domino's reported mixed financial results in the first quarter. Revenue increased 2.5% to $1.1 billion, which missed the consensus estimate by about $20 million. However, GAAP earnings increased 21% to $4.33 per diluted share, ahead of the $4.07 per diluted share that Wall Street anticipated.

The company's same-store sales in the U.S. fell 0.5% because of challenging economic conditions. But the company still beat competitors Pizza Hut (owned by Yum! Brands) and Papa John's, which saw same-store sales fall of 5% and 3%, respectively. That marks the sixth straight quarter where Domino's has outshone its largest rivals, which is evidence that innovation and promotions are indeed driving market share gains.

The company currently pays a quarterly dividend of $1.74 per share, which equates to a dividend yield of 1.4% at the current share price of $493. But Domino's has increased the payout for 12 consecutive years and the dividend has grown at 17% annually over the past five years. That makes the stock a reasonably attractive idea for passive income investors.

However, Wall Street expects the company's earnings to increase at 6% annually through 2026. That makes the current valuation of 28 times earnings look rather expensive. Domino's is a good business that pays a healthy dividend. But I think prospective investors should wait for a cheaper entry point before buying shares.

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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Domino's Pizza, DoorDash, and Uber Technologies. The Motley Fool has a disclosure policy.