Three Strong Motivations to Invest in Domino's Pizza Shares without Hesitation
Eating out stocks are seldom "must-have" investments. Not only is it not an industry with high growth potential, it's also highly competitive and offers low profit margins. These are characteristics that investors often try to avoid.
Occasionally, though, a promising restaurant stock emerges. Domino's Pizza (DPZ -0.69%) is one such opportunity, and it's likely to remain so for the foreseeable future. If you've got some room in your portfolio for a steady performer, this often-overlooked stock could be an excellent fit for three key reasons.
1. It delivers impressive growth
No matter what Domino's is doing, it's working. In 2021, it became the world's largest pizza chain with 18,848 locations, surpassing Pizza Hut's lead. Since then, it's distanced itself from Yum Brands' rival arm as well.
This growth isn't just about expanding its footprint for bragging rights. Its total revenue growth has matched, if not surpassed, its store count growth since 2013. Apart from the peak sales during the COVID-19 pandemic, same-store sales growth has remained positive for every quarter during this period as well.
Profits have also improved at a faster pace, thanks to effective management of its growing scale.
This consistent progress is a testament to the fact that Domino's is delivering a product that people want and can afford. Not all of its competitors can say the same.
2. It's undervalued
Domino's Pizza stock is currently trading at a discount, no matter how you look at it. Its current pullback from highs reached earlier this year is one way to measure that. Shares are currently down 17% from the June peak. While it's not a huge setback, it is a significant one for this particular stock.
The stock's weakness stretches back to 2022, when the pandemic finally ended and investors got their first chance to assess the pizza chain in a normal environment following a period of rapid expansion. They weren't necessarily unhappy with what they saw. They just weren't sure how to price it into the stock.
The majority of analysts, however, are confident. They rate Domino's stock as a strong buy, and their consensus price target of $483.57 is roughly 12% above the current price. That might not be a huge difference by restaurant stock standards, but it's a significant one.
3. It offers some income, with potential for growth
The third reason to consider Domino's Pizza is its dividend. Its forward-looking yield stands at 1.4%. Sure, you can find higher yields, but this reliable dividend payment should simply be seen as an added benefit to the meatier reasons to own a piece of Domino's. That's consistent, above-average growth rooted in a well-run and well-marketed business.
This stock is certainly no slouch to income-focused investors looking for reliable dividend growth. Domino's Pizza has increased its annualized quarterly payout for 11 consecutive years, from $0.20 per share in mid-2013 to $1.51 now. That's a compound annual growth rate of around 20%, which is better than the dividend growth offered by more familiar dividend payers.
There's no reason to suspect this dividend growth will stop. Only about one-third of its net earnings are paid out as dividends, leaving plenty of room for more payouts.
Bonus: Buffett likes it
There's a fourth, less quantitative reason to consider buying a piece of Domino's Pizza soon. This stock is now one of a few names that has caught Warren Buffett's eye in an environment where he's finding few stocks that appeal to him.
You don't necessarily have to follow Buffett's every investment move. But he's called the Oracle of Omaha for a reason. Berkshire Hathaway's track record of outperforming the S&P 500 over time is proof. That's why Berkshire's recent investment in Domino's is a strong endorsement of the company.
It's a relatively small investment for Berkshire, but Buffett and his team like the company enough to take on a small position. That's significant, especially since Berkshire's small investments often grow into larger ones over time.
- Given Domino's impressive growth and undervalued status, some investors might consider allocating a portion of their finance portfolio for investing in Domino's Pizza stocks, such as Domino's Pizza Inc. (DPZ -0.69%).
- If you're looking for a balanced investment strategy that includes income and growth potential, you might find Domino's Pizza appealing. With its consistent dividend increases and strong financial performance, it could be an attractive opportunity for money management in your investment portfolio.
