If billionaire investor Warren Buffett is bullish on a stock, that's normally a sign for other retail investors to pile into it as well. Last month, investors learned that Domino's Pizza (DPZ -0.69%) became one of his latest holdings and unsurprisingly, the stock has rallied since then.
But what about for retirees? While the pizza company is a well-known brand and it pays a dividend, is it a suitable option to put into your retirement portfolio today? Let's take a closer look at the business.
Domino's has been growing but at a slower rate than in previous years
The past five years have been volatile for Domino's as stay-at-home orders during the pandemic led to a surge in revenue and that made the stock a hot buy with investors. But business has been slowing down since then. And in some recent quarters, sales have even declined on a year-over-year basis.
DPZ Operating Revenue (Quarterly YoY Growth) data by YCharts
For growth investors, this may appear to be a troubling trend. But for retirees, what's arguably more important is stability. And in each of the past four quarters, Domino's has posted a profit of at least $125 million with sales topping at least $1 billion. Over the trailing 12 months, its net profit margin has been north of 12%, which could provide a valuable buffer if economic conditions worsen and the company needs to be more aggressive on price.
Another buffer investors can get from the business is from its dividend, which could look deceptively low.
The company has significantly raised its dividend over the past decade
For retirees, a dividend can be an important feature of a stock as it allows investors to generate recurring cash flow without having to sell their shares of a business. Domino's offers a modest dividend yield of 1.3%, which is in line with the S&P 500's average.
That yield may be a bit underwhelming but Domino's can still potentially be a great dividend stock to own. That's because what may be appealing to retirees is Domino's rate of dividend growth. Over the past decade, the company has increased its payouts by more than 500%.
DPZ Dividend data by YCharts
Large dividend increases may not continue if the economy struggles but the good news is that with a payout ratio of less than 40%, there's plenty of room for the company to continue growing its dividend for the foreseeable future, even if business doesn't take off.
For retirees, whether or not a company grows its dividend can be crucial when picking an income stock to buy as that can offset the effects of inflation, which would otherwise chip away at the dividend income over time.
Is Domino's Pizza stock a good option for retirees?
Pizza delivery hasn't gone out of style in more than 135 years, with the first recorded delivery taking place back in Italy in 1889. It has evolved over the years but there's still growing demand for pizza, which is evident in Domino's strong numbers.
The consistency the business offers investors, coupled with its growing dividend, makes Domino's Pizza a potentially ideal stock for retirees to hang on to. It isn't likely to go on wild swings in value and can provide investors with a solid stream of recurring income through its dividend payments.
