Many headlines surrounding Domino's Pizza's (DPZ 1.45%) fourth-quarter results last week were focused on the company's worse-than-expected quarterly revenue and its lowered outlook for retail sales growth over the next two to three years. However, there were some good things in the report, too. One thing worth highlighting is yet another dividend increase from the pizza delivery king.
The company's fresh double-digit dividend increase adds to an impressive track record of dividend growth. Further, a dividend increase amid a difficult macroeconomic environment helps demonstrate how resilient Domino's business is.
Here's a closer look at the pizza delivery company's attractive dividend.
Dividend growth
Domino's announced last week that it is raising its quarterly dividend by 10%. Its regular cash payment to shareholders has increased rapidly in recent years. Including this most recent increase, Domino's quarterly dividend more than doubled over the last five years, soaring from $0.55 in 2018 to $1.21 this year.
A low payout ratio
Looking ahead, more strong dividend growth is likely. Consider that only 40% of the company's $388 million in free cash flow during 2022 was paid out to shareholders in dividends. The upside for dividend growth in the years ahead is substantial. Driving this point home further, dividend payments as a percentage of Domino's 2022 net income were even lower, coming in at less than 35%.
Such a low payout ratio also means that Domino's dividend is likely one shareholders can rely on even if the macroeconomic environment deteriorates further. For instance, if Domino's earnings took a hit, there is still plenty of wiggle room for the company to maintain its dividend while continuing to reinvest in its business.
A meaningful dividend yield
Domino's 10% increase to its quarterly dividend means the stock's dividend yield is now 1.6%. While this isn't mouthwatering, it's high enough for shareholders to appreciate it. It's especially solid when considered alongside the likelihood of more strong dividend growth from the company in the years ahead.
Beyond Domino's dividend
A good analysis of Domino's dividend shouldn't go without mention of its accompanying share repurchase program. Management has opted to return cash to shareholders in more ways than one. Regular share repurchases represent the other method the company is distributing cash to shareholders, albeit indirectly.
Believe it or not, Domino's is returning even more cash to shareholders through repurchases than through dividends. Of the $452 million Domino's returned to shareholders in 2022, $294 million was allocated to share buybacks. About $158 million went to dividend payments.
Looking ahead, shareholders can expect more repurchases from Domino's. At the end of Q4, $410 million remained under the company's authorized capital for share repurchases. This authorized capital for share repurchases is especially valuable now that the stock has taken a dip following Domino's recent earnings report. A lower stock price means the company can get more bang for its buck on repurchases.
Overall, Domino's profitable and resilient business has a lot to offer shareholders, even during uncertain times. This is especially evident by the company's 10% dividend increase and management's repurchase program.
