Welcome back everyone. We have a big video to get into
today. I just added a brand-new
dividend-paying company into my portfolio that I've never owned
before and I'm excited to go over it and share my investment
thesis on this company. I'll go ahead and jump right
into it and reveal which one it is.
It's in the restaurant category. Here, you might notice the Emoji
change. That's right.
It's Domino's Pizza. Domino's Pizza is the new
dividend growth holding in my portfolio and I'm excited to go
over why I just bought into this.
Open e and why I'll continue to buy into it at today's price or
below this price. So in this video, we're going to
go over an overview of dominoes and I'll let you know my thought
process behind this, why I'm picking this company to buy
instead of so many Alternatives. I think there's a lot of things
that investors overlooked when they're looking at an investment
in dominoes. So we have a lot to get to in
this episode. If you like this type of
content, you can consider subscribing to the channel and
following along for free. I share my progress of this
portfolio every single Week by week with complete, transparency
for free. Now, let's go ahead and Jump
Right In before we jump in a domino specifically.
I just want to mention that the portfolio has made significant
gains over just the past week. In fact, in the one-week period
were up three point nine. Five percent that beats out.
The S&P 500, a lot of companies in my portfolio have been on
incredibly good. Runs we have my biggest
position. Apple that's up, almost 20% in
just the past 15 days. That is an incredibly good run.
And I'm now a I almost 25,000 dollars in gains apples.
A massive free cash flow generative company.
That does incredible amounts of BuyBacks.
It pays a dividend as a wide moat has great brand value.
And a lot of other things that I like in this company, the
valuation is moving up to a less attractive period.
So although this company has gone up in price and I'm still
bullish on it. I'm not doing any more buys at
the current price. I was buying Apple when it was
ninety dollars a share and then when it dip back down from 150
to 125. So, my buys are at 90 and 120.
Another company, my portfolio that I consider to be top
quality one of the best companies in the world.
That's not a significant run is Costco.
Costco, is another company that just defies the odds?
This one goes up like anti-gravity.
It goes up like a rocket. It never seems to stop in the
past one year. Costco is up 65 percent, 65
percent in the past trailing year, consider the fact that
that's about the same returns as Tesla.
Tesla has a 72 percent return over the past.
Trailing year, but Tesla also doesn't pay dividends which
aren't being factored in here. Costco, pays both quarterly
dividends. And once in awhile, they pay
huge special dividends. And the reason that I highlight
this is just to illustrate that big boring brand names of
seemingly well-established companies like Costco can have
incredibly attractive returns. They can have the returns of
growth like companies like Tesla, so you don't have to
venture in to only a specific group of companies to have
incredibly Of returns Costco's, posting 65 percent returns as a
warehouse. So, when I look at my portfolio,
I'm trying to find companies like apple and Costco companies
that are boring. They're predictable their free
cash flow generative, they're highly durable.
Meaning they have a big moat, they're unlikely to be disrupted
and the last thing of course is we want to find them at
attractive valuations. Now, having said that, I want to
highlight why I think Domino's is one of these companies.
So let's go ahead and dive in with my overview.
This is the comprehensive overview of domino.
Those as an investment will start off with the first thing
here. Domino's is a simple and
predictable business simple. And predictable means that the
outcome is very well predictable.
You know, what's going to happen.
There's not a ton of variables with this company and the
product that they sell, which is pizza is something that really
never goes out of style, it can't be disrupted.
No startup is going to invent a new pizza, that changes the game
for pizza, because pizzas something that likely everyone
loves And it's been around forever and I don't see this
ever-changing. If we consider for a moment,
what pizza even is. It's basically, just do spread
out with yummy stuff, put on it and then baked.
That's really all it is. It's not anything specific.
It's turned into something specific where people think of
the pepperoni pizza, but if you think of it, just as do a stuff
put on, I think it illustrates how versatile Pizza is and with
how many cultures and people that can work with, you can have
red sauce, you can have white sauce, you can have cheese or no
cheese. You can have pepper.
Roni. You can have chicken.
You can have beef and pork and everything else, or you could
take out all of the meat and throw an entire salad on top of
the pizza. Some people love that crazy
version of pizza or the combo pizzas, but really when it comes
down to it, there's not too many people that dislike every type
of pizza. That's just something that I
don't see that often and I don't think that's going to change any
time in the future Pizza. Something that will always be
around because the product is extremely versatile.
Now, the next point is where I think investors get lost.
This is where investors look at this.
Company incorrectly Domino's is a pure franchising company which
means that all of their locations are operated as
individual businesses with a franchise owner.
And the company itself, really doesn't own any of the land or
any of those businesses. All they do is they license.
They license their IP to these franchise owners and they
collect fees from those franchisees.
So it is an asset light business.
Domino's doesn't have to only Own all these locations.
Domino's doesn't really have to deal with all the employees that
individual franchise owners deal with all of that.
And all the franchise owners at least above. 90 percent of them
have actually worked at a Domino's as just a low-end
employee. At one point, they've worked as
somebody that makes pizza. They work to somebody at a
franchise itself. They know the business, the
understand the business and they work up in the ranks, become a
manager to really understand it and then they become a franchise
owner. So I think it's a pretty cool
thing. That all the people that own
these Franchises are people that really just worked at the
company at one point, they're not big wig business people.
There people running it as kind of a small business but this
model also has a lot of benefits.
First of all, it's asset light. So Domino's Works more like umg,
Universal Music Group, just creating music and Licensing it.
Then they do a normal company with a ton of physical assets,
they work more similar to Marriott.
A lot of people think of Marriott is the hotel company.
Oh, Marriott owns, thousands of Hotels.
Well, that's incorrect. Marriott.
Actually owns only seven of the 7,000 hotels with their name on
it. They are also an IP company
similar to Dominoes, they just have a method of doing things.
They have their brand name. They have their intellectual
property, which they license out to these physical buildings.
They license out to these hotels and they collect fees.
So, Marriott doesn't own hotels and Domino's doesn't own the
physical buildings, or the physical assets.
They are a fee collector and I think It's a great business
model. So I think right here, this
should change the way that you view Domino's.
The product that they really sell the product at the company
really sells is, its intellectual property.
That's what you're investing in when you invest in dominoes
their name, their license their technology, their process of
doing things. All the physical assets are
owned by other people. Another thing that I think is
worth mentioning here is I put down no unions.
I think it's very unlikely that dominoes will have an issue with
unions like we're seeing with Starbucks.
Have you ever wondered why Starbucks is being targeted with
unions and not McDonald's or Burger King or Domino's or many
other companies that actually don't pay their employees as
well as Starbucks Starbucks, is probably the best in terms of
pay an employee benefits yet. They're the ones being targeted
by unions and that is specifically because Starbucks
is an easy target. Most Starbucks locations.
In fact, almost all of them are owned by Starbucks Corporation.
So they all have the same Team owner and that makes the path
for unionization very simple with a company.
That is a pure franchising company.
You have tens of thousands of separate owners of each location
and that makes it incredibly difficult to put together a wide
Union, the logistics of it are incredibly difficult.
So I see it as a very small chance of dominoes having the
same Union issues that Starbucks has, it could happen, but I
think it's very unlikely. But again the important takeaway
here for investors, if you're investing Ting in dominoes what
you're investing in is their intellectual property and their
ability to sell it to franchise owners, you're not really
investing in the physical assets, the locations, the
stores you're investing in their IP.
Here's another mistake that I constantly see people making
when they look at an investment and Domino's, let's just be
clear here, Domino's is a low-end pizza maker.
That's what the business is Domino's.
Consistently outperforms, all other low-end, Pizza makers.
And if you're trying to do research on dominoes and you
compare a Those pizza. There's some high-end local
Artisan pizza place. You're making a mistake.
You're comparing it to something.
That's not its competitor. They sell convenient cheap
consistent experience in Low End Pizza.
And by low on Pizza, I don't mean that as an insult, I just
mean it as what they're targeting.
Their targeting value, cheap pizza right on their website.
The biggest thing they have highlighted is the price, not
the pizza, but the price and what they show is that you're
going to get a very good value. You for what you're ordering.
So again, comparing this experience to your local
Artisan, pizza joint, and the comments of people sing.
Well, my local pizza joint is way better than dominoes, of
course it is, but it's more expensive and it's not
convenient. The places you should be
comparing, dominoes to are not your local pizza maker, but
places like Little Caesars. Domino's Pizza Hut.
Those are their competitors. Domino's is like the fast-food
of pizza. They offer, local convenient.
In pizza at an extremely good value and of those competitors.
Papa, John's Pizza Hut and Little Caesars.
Domino's has consistently outperformed doll of them, and
they show no signs of slowing down in that outperformance.
In fact, on that note of dominoes competitors, almost all
of them have increased their prices.
Just recently, more than Domino's has you have Little
Caesars charging $8 for they're hot and ready.
This is a higher priced in dominoes so those price
increases of their competitors, actually makes the value
proposition of dominoes better. Another thing to mention is That
Domino's has their own delivery infrastructure.
They've been in delivery forever, they know, delivery
extremely well they're good at it and that also makes it so
that they're not reliant on door dashing ubereats.
And I'm sure you've seen the Articles or you've used or
dashing ubereats and seen the amount of fees that they charge,
they charge huge margins for every single order, which
dramatically increases the prices.
If you were to ubereats or doordash Papa John's or Little
Caesars. Your pizza is going to be a lot
more expensive than if you just order it from I was in have
their own delivery people deliver it, so by Domino's
owning their own delivery infrastructure.
That gives them a slew of benefits.
Not only do they save the money off of the incredibly High fees
that doordash and ubereats charge, but they also can ensure
a more consistent and accurate delivery.
I'm sure if you use doordash or ubereats, you're used to getting
the wrong thing or missing items that happens frequently, or you
get cold food because they don't store it in something to keep it
warm by Domino's, having their own delivery drivers you No, the
order is going to be correct and warm when it arrives, because
they're not passing the food off to some unknown third party,
that hires gig workers. Now, moving on, we have another
subject of recessions. There's been a lot of chatter
online about the upcoming recession.
I'm sure you've heard about it. The inverted yield curve, the
high inflation that typically proceeds recessions, the
increasing interest rates, all of this stuff increases the
chance of recession. Now, I'm firmly in the camp that
predicting a recession is very Cold, most people will be
inaccurate and I don't think it's something that you should
worry about predicting. But I also operate under the
assumption that eventually, we will have a recession, it is
unavoidable at some point, our economy will enter into a
recession. And so every investment I make
is one that I don't only want to survive a recession, but I
wanted to actually flourish during a recession when I look
at restaurants and the type of companies that will do well
during recessions. I think it will be the ones that
offer the cheapest product, the most convenience and the value.
Opposition will go very far. I look at Pizza as one of the
better categories because I think that pizza feeds a lot of
people for cheap. If you order one, $8 or $10,
Domino's Pizza, you can feed a family of five that is a very
cheap value proposition. So although it's difficult to
predict how dominoes will do during a recession, my
prediction. My assumption is that it will do
much better than most other food joints if we enter into a
recession. Now, these are all different
fundamental qualitative aspects of the company.
Go ahead and look at some other things that are more numbers
driven. What is this company actually
doing with their dividends and share BuyBacks?
One thing about dominoes is that it has a low starting yield of
around one percent, if you're buying it right now, so that
might turn off some Gibbon and investors that are looking for
higher starting yields. But you have to keep in mind
that Domino's has a fast growing dividend much faster than the
market average. In fact, it's been averaging
around 17 to 20 percent dividend growth for the past five years.
So this company has a lot of free cash flow that they use to
fund a fast growing dividend to put that in perspective.
If we look at their dividend history hair back in 2013, it
was 20 cents per quarter per share, just 20 cents their most
recent one was $1.10. So in less than a ten year
period, they 5x their dividend five times, their dividend in a
10-year period and they're not really slowing that down too
much their last quarter, they raised it by 17 percent on on
top of that their payout, ratios 27.7%.
That's Very low payout ratio that just means that their
dividend payments are very well covered and likely to grow
further in the future. They have a lot of wiggle room
here. In fact, they could increase
their dividend by two or three times and still function just
fine. So, in terms of a div, a
Domino's does have a lower starting yield.
But again, I'm investing for the next five to ten years and they
grow their dividend at a very rapid Pace.
Now, on the subject of returning cash back to shareholders.
Domino's does some of it through dividends but they do a lot of
it. It through BuyBacks their
BuyBacks are absurd. Let me go ahead and show you an
example of how absurd their BuyBacks are.
Let's go ahead and go to the shares outstanding here.
Last quarter they had 36 point, 1 million shares outstanding.
And if you go to the same quarter a year ago, the at
thirty eight point, eight million shares outstanding, that
means that the company bought back roughly 7% of their entire
market cap. In just one year, one year's
time, they bought back 7% of their entire market cap.
That's Free cash flow. They generate the company not
only pays a growing one percent dividend yield but they're
buying back. Huge chunks of their market cap
every single year and the last four quarters weren't anything,
really even special. They've been doing this for a
long period of time. You notice the share count going
down dramatically that is because Domino's is devouring,
their own share count, they're buying back more and more of
their company, every single quarter which has so many
benefits for the company. It makes it easier for them to
pay a growing dividend because there's less shares outstanding
that they have to pay dividends for each share.
It also makes it so that their earnings on a per share basis,
go through the roof which improves the valuation of the
company. So these BuyBacks benefit the
investors to a dramatic extent and just recently May of last
year Domino's increase their by back by another billion they're
spending another billion just on BuyBacks not even on dividends
keep in mind that this is a fourteen point eight billion
dollar market cap company. So 1 billion dollars of BuyBacks
is a Amount of their share. So if you're investing in
dominoes, one of their biggest buyers is going to be the
company themselves. They generate such a
consistently high and growing free cash flow, every single
quarter that they can continue to do these share BuyBacks and
dividends for the long-term foreseeable future.
So I see the BuyBacks and the dividends as a continued
long-term theme for Domino's. They're going to continue to
raise their dividend, that's almost a certainty.
And they're going to continue to buy back their shares and not
only does this help the earnings per share, it helps us Stock
price go up, but it also is somewhat of downside protection.
If Domino's was to fault 30 or 40 percent in stock price, these
BuyBacks would go a lot further, they be buying back 10 and 15%
of the market cap instead of seven percent.
So the BuyBacks become more attractive as the stock price
goes down. That is downside protection.
Now continuing on, we get to some of the risk factors here.
They do have a lot of debt Domino's carries more debt than
most companies that's been their Capital allocation strategy so
far. Get the cash flow ratio is about
eight times which is a bit more than most companies that's
around the same way that McDonald's operates.
It is true that they hold a lot of debt that's only because they
figure they'll get better returns by buying back their own
stock and paying dividends than paying down the low interest
rate debt. If interest rates go up
dramatically dominoes will be forced to funnel some of their
free cash flow into debt instead of share BuyBacks and they'll do
that if their cost of capital goes up.
So I do consider this somewhat of a risk or at least a Down
side of the company. They do carry a lot of debt but
I think it's something that they're more than capable of
handling. I don't see them in any type of
distress situation quite possibly.
The biggest risk factor for Domino's are all the near-term.
Pressures. We have higher inflation.
Higher inflation leads to high labor costs.
So Domino's does have to hire employees and the high labor
costs actually eat away at their margin and I think that's the
biggest concern for this company.
What are their margins going to look like in a year?
Will they continue to get compressed?
Or we actually And that's a question that a lot of investors
are asking themselves if they continue to struggle finding
employees, and they have to raise wages a lot for their
employees that could compress their margins.
The thing that's working in the benefit of dominoes, is their
competitors have already raised prices more than them.
So that does give them some wiggle room to raise prices
without losing their customers to competition.
So, this is a basic overview of some of the qualitative stuff I
like about dominoes, but let's go ahead and look more carefully
at some of the numbers here. What we're looking at here is an
investment. Tool called qual trim, that
gives you fundamentals of the company.
If you want to check this out, you can join the patreon.
It's part of the patreon, but we can look at is the revenue
growth of this company. It's very consistent over a long
term basis. Last quarter was actually lower
than the previous quarter, which was fully expected by the
company when we were right in the middle of lockdowns.
In 2020, of course, ordering pizza was very popular.
So this is a bit of an anomaly to grow this much in one year.
But if we look at it on a two-year basis this Quarter
compared to the same quarter, two years ago, it's
significantly higher so Domino's still continues.
Its long-term growth Trend, even with the anomaly of 2020.
Another thing that I'll highlight is that the store
count for Domino's is 18,000 848, that is their total stores
across the entire globe. And just last quarter, they
opened up 468 new stores that's in a three-month period in the
year of 2021. They opened up 1204 stores so
they're opening up over 1,000 stores a year.
Basically, this is a way of saying the company has a lot of
growth ahead of it. It is still somewhat in the
middle of its growth curve and I anticipate them opening up,
thousands and thousands and thousands of more stores.
So the revenue growth will continue.
The ibadah growth is very consistent and very strong since
2017 the free cash flow. Growth has been always positive
and very consistently growing over time and this is of course
really what we're looking for in all of their income.
Consistent growing free, cash flow, their net income Models
both their ibadah and their free cash flow growth.
Like I pointed out they do carry a lot of debt over 5.1 billion
and they only have one hundred and forty eight million on the
balance sheet as of last quarter.
So this company doesn't like the keep cash on hand.
They probably know that inflation is working against
them. They have a steady stream of
free cash flow head of them. Instead of keeping this cash on
hand they do BuyBacks and dividends that simply what they
do at their Capital, allocation strategy.
If you look at the options here, this has been the right
decision. This has created the most
shareholder value possible and like we've seen their Dividends
are growing. Very steadily fifteen to twenty
percent year-over-year. Their share BuyBacks are very
aggressive and their earnings per share is result is extremely
consistent and very rapidly growing.
This is growing faster than most tech companies and like you may
have heard before Domino's has actually out performed, the
majority of tech companies. So that's a basic overview of
the fundamentals and some of the qualities of the company.
Let's go ahead and talk about valuation because right now
dominoes, At around a 27, P/E ratio, and that's kind of pricey
that's around the same price has Apple.
So why am I buying dominoes out of 27?
P/E ratio, when there's lots of other companies at a lower P/E
ratio, dominoes is a little bit more expensive.
Let me go ahead and throw this graphic on the stream, showing
Domino's historical valuation with my own drawings on top of
it. So I know it's not the most
professional looking but I promise this illustrates an
important point, the black line going through the horizontal
axis, that is A line of the PE Ratio that it currently trades
at. So right now dominoes trades at
a 27 price to earnings on a forward-looking basis.
Now, what I did was I drew all the area that Domino's has,
historically traded Above This PE ratio since 2014, the
majority of the time Domino's has traded well Above This
forward, P/E ratio, well, above it and there's only a few times
throughout history that it's dropped down below it, there is
a tiny bit during 2017 from A month or two, there is a decent
amount of time in 2019 but other than that there's only a few
blips, there's not many times at Domino's trades below, its
current PE ratio. It's just simply growing too
fast to trade below that and there's ample times many times
throughout history were dominoes trades.
Well, Above This PE ratio, in fact, on average, Domino's trade
somewhere above a 30 trades, between a 30 and a 32, sometimes
it gets as high as a 38 or 39 Ford PE Ooh, this is a company
that's gotten all the way up to a 40 Ford P/E ratio.
So when I look at this and I try to determine does Domino's have
more upside or more downside. I think.
Historically, looking at has far more upside, the growth of
nominals remains very strong, the mode of the company remains
very strong. They still have a huge leg up
over all of their competitors and I expect their earnings
growth to continue at a very brisk Pace.
They're going to have 12 %, EPS gains, I think for the very long
term future. So when I look at the Upside and
downside and I look at it historically I see a lot more
upside right now than downside. There is a chance that Domino's
could lose their lead and maybe it would trade down to 2013
levels, but I think that's very unlikely.
When I look at the potential downside, there's only a few
times in its history. It's ever gone down that much.
And I think the reason that the PE Ratio right now is as low as
it currently is, is because of the scary environment, where in
we have high inflation, we have increasing interest rates, we
have Have lots of near-term threats to the economy and to
the stock market. But typically that's been a very
good time to buy. So right now, I've you dominoes
as an asymmetric bet, with more upside than downside, the dip
finder, which is a tool. I develop that illustrates the
price versus that 200, a simple moving average shows that
Domino's is in one of the biggest dips of all, the
companies that I look at, it's right there.
Next to Starbucks and Disney. This company has gone through a
significant dip, its down 15% below, its 200-day, moving
average. Look at the graph here, over,
just the past year. The company was just recently at
560 a share 560, that's what it was at in January and then it
traded down 27% to $400 and below.
So, it seems like investors have changed their minds overnight
about dominoes, and I simply think it's unwarranted.
I think the company is going through a dip, that's not
entirely Justified, so that's basically it Dominoes is a very
high quality free cash flow generative company with an
attractive growth story and it pays a fast.
Growing dividend, it does massive BuyBacks and I think
that it's currently undervalued having said that I only have two
thousand four hundred dollars in this company.
So it is a smaller holding of mine.
If it does trade around its current price, I will continue
to buy more of this company. I'm going to be funding that
through some new deposits as I get more money and do continual
deposits into my portfolio. But also through dividends, I
just received eighty dollars for Microsoft $10 from Target, $60
from Home Depot, 37, Is from Texas, Roadhouse $30 from
Schwab's, large cap, growth ETF, and $253 from SC HD, all of this
money. Every single bit of it, the four
hundred dollars plus went into dominoes.
That is the compounding effect that you see what these
dividend-paying companies. I love this stuff, they pay out
their free cash flow and dividends and I can use that
money. Not just to reinvest back into
their Holdings, which may not be the absolute best value, but to
find other companies that I think are currently offering
more attractive value. That's exactly what I'm doing in
this situation. If I look at my upcoming
dividend schedule, I have another slew of dividends coming
in one of them on the 7th of April, is $406 from Vici so I'm
going to get paid that cash from Vici.
And if Domino's is still at an attractive price, if it hasn't
shot up in price, this is going back into dominoes so the
compounding effect continues I'll be using the free cash
flow. This portfolio generates to buy
more dividend-paying companies which generate more free cash
flow and so on and so forth. So that's my thoughts for Now,
hope you enjoyed and I'll see you in the next one.