Yahoo Finance Income Investors Should Know That Domino's Pizza Group plc (LON:DOM) Goes Ex-Dividend Soon
Domino's Pizza Group plc (LON:DOM) is about to trade ex-dividend in the next 2 days. Ex-dividend means that investors that purchase the stock on or after the 19th of March will not receive this dividend, which will be paid on the 27th of April.
Domino's Pizza Group's upcoming dividend is UK£0.056 a share, following on from the last 12 months, when the company distributed a total of UK£0.098 per share to shareholders. Looking at the last 12 months of distributions, Domino's Pizza Group has a trailing yield of approximately 3.3% on its current stock price of £2.917. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Domino's Pizza Group can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Domino's Pizza Group
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Domino's Pizza Group paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Domino's Pizza Group paid out more free cash flow than it generated - 120%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Domino's Pizza Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Domino's Pizza Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Domino's Pizza Group, with earnings per share up 8.7% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, ten years ago, Domino's Pizza Group has lifted its dividend by approximately 15% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
Has Domino's Pizza Group got what it takes to maintain its dividend payments? Domino's Pizza Group is paying out a reasonable percentage of its income and an uncomfortably high 120% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not that we think Domino's Pizza Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Domino's Pizza Group as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for Domino's Pizza Group and you should be aware of these before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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