Domino’s Pizza stock spiked 25% to hit an all-time high of $381 on Thursday’s trading. | Source: Shutterstock.com
- Domino’s’ stock has been on a tear after a better-than-expected earnings result on Thursday.
- Investors are excited about the company’s earnings beat as well as its dividend hike and positive outlook for the future.
- Management will have to keep the good news coming if it wants this monster rally to continue.
Shares in Domino’s Pizza (NYSE: DPZ) soared 25% to an all-time high of $381 before settling at $373 by the market close on Thursday. This monster rally took the market by surprise and gives the Michigan based pizza giant a market cap of $12.15 billion.
Domino’s’ share price soared by around 26% for these three reasons. Source: Ycharts.com
So why is Domino’s soaring? Here are three reasons why the stock is up today.
1 . An Earnings Beat
Domino’s Pizza reported its fourth-quarter fiscal 2019 earnings, and the results were a slam dunk. The pizza restaurant reported revenue of $1.15 billion. This is a 6.5% increase from the prior-year period, and it beats analyst expectations by $20 million. The bottom line also exceeded expectations with EPS coming in at $3.12 compared to analyst expectations of $2.97 per share.
Domino’s top-line beat was driven by a jump in comparable sales growth, especially in U.S. franchised outlets. The company’s operating margin also exceeded analyst’s expectations leading to the strong bottom-line result.
2. A Dividend Boost
Domino’s boosted its quarterly dividend payout by 20% from $0.65 per share to $0.78 per share. This comes out to a $3.12 annual payout and a dividend yield of 0.84% on the current stock price.
To be fair, this isn’t a very big dividend. But, it is growing, and that is very important for income investors.
With $9.83 in earnings per share in fiscal 2019, Domino’s has a sustainable dividend payout ratio of around 32%. And it has grown its payout for six years in a row.
Domino’s augments its dividend with a generous share buyback program.
The buybacks help the company return value to shareholders by reducing dilution, improving dividend sustainability, and boosting per-share metrics like EPS.
Jeff Lawrence, Domino’s’ CFO, elaborates on the company’s cash return. He stated the following on the fourth-quarter earnings call:
We also returned nearly $650 million of cash to shareholders during Q4 comprised of share buybacks and dividends.
3. An Optimistic Outlook for Domino’s Pizza
While Domino’s’ management didn’t provide a concrete numerical guidance range in the fourth-quarter earnings call, they did use the opportunity to provide investors with an optimistic outlook for the future.
Rich Allison, Domino’s’ CEO, gave investors clues about the pizza chain’s outlook for this year.
As I look ahead to 2020 in the U.S. business, I’d like to highlight a few areas of focus for us. First, we’re going to continue to fortress our markets. Our strong four wall and enterprise profitability for franchisees should continue to position them well for continued growth.
He also hinted at some delicious new products in Domino’s restaurants.
We’re also excited to deliver some new menu news this year and look for that to come this summer.
Will the Domino’s Pizza Rally Continue?
Domino’s’ earnings beat, dividend hike, and strong outlook for the future seem to be behind the stock’s monster rally on Thursday. But with shares trading near all-time highs, can the company keep its momentum?
Management will have to keep the good news coming if it wants this rally to continue.
This article was edited by Samburaj Das.
