Buy Domino’s shares for a 50% return and attractive dividend yield

If you’re wanting a combination of big returns and a decent dividend yield, then Domino’s Pizza Enterprises Ltd (ASX: DMP) shares could be the way to do it.

That’s the view of analysts at Morgan Stanley, which believe the pizza chain operator’s shares are great value at current levels.

What is the broker saying about Domino’s shares?

According to a recent note out of the investment bank, its analysts have an outperform rating and $68.00 price target on its shares.

Based on its current share price of $45.20, this implies potential upside of 50% for investors over the next 12 months.

To put that into context, if Morgan Stanley is on the money with its recommendation, a $10,000 investment would be worth $15,000 by this time next year.

Why is it bullish?

The broker believes that the market is too negative on the company’s margin outlook. It highlights that the consensus view is that its margins are now structurally lower compared to pre-COVID levels.

However, it sees scope for margins to recover from improved store profitability, lower food costs, and restructuring benefits. In respect to food costs, it estimates that inflationary pressures on these costs have wiped off 2% from its margins.

All in all, the broker believes that “FY24 will be an inflection point for key share price drivers.”

Dividends

But the returns won’t stop at share price gains, Domino’s is a consistent dividend payer.

Morgan Stanley is expecting a $1.21 per share dividend in FY 2024, which represents an attractive 2.7% dividend yield. This would mean dividends of $270 from a $10,000 investment.

And if you’re willing to hold on, you can expect an even better yield next year according to Morgan Stanley. It has pencilled in dividends per share of $1.82 in FY 2025, which would mean a 4% dividend yield for investors.

The post Buy Domino’s shares for a 50% return and attractive dividend yield appeared first on The Motley Fool Australia.

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More reading

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Motley Fool contributor James Mickleboro has positions in Domino’s Pizza Enterprises. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Domino’s Pizza Enterprises. The Motley Fool Australia has recommended Domino’s Pizza Enterprises. 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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