Picture supply: Domino’s Pizza Group plc
As an investor, it may be pleasing to see a share we personal and is under water progressively transfer again to its breakeven level, hopefully earlier than persevering with increased. With a dividend inventory, we’ve got the added bonus of amassing dividends alongside the way in which.
That has occurred this yr with one of many UK dividend shares in my portfolio: Domino’s Pizza Group (LSE: DOM).
Though the share worth remains to be under what I paid for it, it has been getting nearer to that time once more.
The share worth is up 31% up to now this yr, a a lot stronger efficiency than the 11% achieve within the FTSE 250 index (of which it’s a member). That sturdy share worth momentum will proceed, I hope.
In the meantime, even after that improve in worth, the dividend yield remains to be a horny 5%.
I’ve no plans to promote my shares. In actual fact I feel that even at this worth, the dividend inventory is price contemplating.
A easy enterprise mannequin in a fancy market
At first look, Domino’s would possibly appear to be in a really sturdy place.
The British franchisee of the long-lasting US pizza model streamlined its focus over latest years and moved out of markets that had been a distraction from its core UK operation.
It has sturdy model consciousness, an energetic loyalty scheme, economies of scale and a confirmed enterprise mannequin.
Nevertheless, issues haven’t been as easy as that will counsel (serving to clarify why the share worth remains to be under what it was once I purchased). Pizza fatigue has set in amongst some shoppers, so though Domino’s has a robust market place it has been battling a lacklustre pizza supply market general.
One other threat is that weakening shopper confidence is hurting some folks’s willingness to splash out on takeaway meals.
Pizza fatigue has been exacerbated by a surge within the recognition of rooster. Protein-rich diets and different developments have fed into this and should proceed to take action.
To its credit score, Domino’s administration has embraced this potential menace as a possibility, with its personal Chick ‘n’ Dip product providing. It stated final month that buyer suggestions has been “extremely constructive”.
On the up, however heaps nonetheless to show
Having had a constructive first half general, Domino’s continued its momentum within the third quarter, with complete system gross sales rising 3.5% yr on yr.
Like-for-like gross sales development was nonetheless constructive, though weaker than within the first half. That means Domino’s has its work reduce out to attempt to stave off the problem posed by weakened shopper confidence and the affect on discretionary spending I discussed above.
That is the place a robust model and intensive loyalty programme may help it, I reckon. It’s a easy enterprise mannequin with clear levers for administration to tug whilst the buyer demand panorama evolves.
The primary half noticed a 3% year-on-year improve within the interim dividend on the again of 75% year-on-year development in underlying free money circulate.
If administration can preserve shifting the enterprise ahead and rising profitably, I see ongoing scope for additional dividend development.
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Christopher Ruane owns shares in Domino’s Pizza Group.
