Why I think Domino’s can deliver as an ASX dividend share

A couple of friends at a rooftop party enjoying some hot and tasty Domino's pizzaA couple of friends at a rooftop party enjoying some hot and tasty Domino's pizza

The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price is 3% higher in morning trading today. It’s currently fetching $74.85 per share and is up 17.2% over the past month.

The increasingly global fast food business has been growing in size for many years. But the Domino’s share price has more than halved in the past year. It’s down around 55% since mid-September 2021.

One of the benefits of a lower share price is that it boosts the prospective dividend yield for new investors. Not only that, Domino’s has some grand plans for company growth, which in turn could raise profits and dividends for shareholders.

Domino’s has long been seen as an ASX growth share, but could it become an ASX dividend share, too?

A decade of growth in Domino’s dividends

Domino’s can point to a decade of growth in its dividend over the past 10 years.

Most recently, the company decided to maintain its interim dividend for FY22 at the same level as FY21. This followed a 5.3% fall in underlying net profit after tax (NPAT) to $91.3 million in the first half of FY22.

Based on the past 12 months of dividends, Domino’s has a grossed-up dividend yield of about 3% at the current share price.

If the company grows its earnings over the long term, I think the dividend can rise as well.

Looking at CMC Markets’ estimate for the Domino’s dividend in FY24, it suggests long-term growth.

CMC has projected a potential grossed-up dividend yield of 3.7% in FY24 due to higher earnings by then.

Why the earnings of Domino’s could rise

The food business is employing a few key tactics to help it grow its earnings into the future.

Growing into new international markets has been a big boost for the scale of the business over the years. Domino’s recently added its tenth market, Taiwan, which brought 156 stores to the overall network.

The company has two longer-term goals. Over the next three to five years, it wants to grow its new store openings by 9% to 12% per annum and increase same-store sales by between 3% to 6%.

To put some numbers on it, the Asia Pacific region currently has 1,959 stores. Domino’s wants to grow this to 3,600 (a collective increase for the region of 83.8%). In Europe, it has 1,368 stores and wants to grow this to 3,050 (up 123%).

Domino’s believes that the growth of digital and delivery will help the company achieve the growth it’s looking for. The company notes that delivery is the fastest growing part of the fast food market.

The company thinks that increased scale will help in a number of ways. This includes growing advertising funds and reducing the cost of delivery. It says that shorter run times mean more profitable deliveries.

It believes that a reduction of delivery costs by a third is possible in every market.

What’s happened to the Domino’s share price in 2022?

The Domino’s share price is down nearly 40% in the year to date.

A falling share price automatically lifts the dividend yield, as long as the company can maintain the same level of payments to shareholders.

Foolish takeaway

According to CMC, the Domino’s share price is valued at 27 times FY24 estimated earnings.

While not as cheap as it was in June, I think this represents an attractive entry point for long-term investors.

FY24 and beyond look like good years for dividend growth.

The post Why I think Domino’s can deliver as an ASX dividend share appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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