Dividends Delivered In Thirty Minutes Or Less

Investing In Pizza Industry Dividend Stocks

 

The U.S. pizza industry is large by most measures accounting for over $36 billion in annual sales. Surprisingly, it is the independent pizza restaurants that collectively account for the largest slice of the sales pie controlling about 40% of the market. The big three pizza chains Pizza Hut, Domino’s and Papa John’s account for 15%, 9% and 6% respectively. The remaining control is divided among other smaller chains such as Little Caesars and others.

 

Of course, being an income and dividend-centric investor I am only interested in the pizza stocks that can actually pay me an ever increasing income over time. That being said, only a handful of pizza companies in the U.S. pay out dividends which will be the focus of this article.

 

 

Delivering our first dividends is one of the largest quick serve restaurant companies in the world, Yum! Brands, Inc. (YUM). Owners of the iconic Pizza Hut, Taco Bell and KFC restaurant chains, YUM currently offers a decent yield of 2.30% with a moderate payout ratio of 48.5% based on current cash flow. The dividend is considered safe at present while the stock also has a pretty impressive five year annualized dividend growth rate of 15.12%. YUM can definitely be considered a growth stock despite its decent yield as expansion into China and India are rapidly increasing. Buying into YUM also has the advantage of enabling ownership in three very large successful brands providing the investor with “restaurant diversification.” Looking at the valuation of YUM the current PE is 27.16 making it quite expensive relative to the S&P but in line with industry peers. High PEs often accompany higher growth stocks. Forward PE looks a lot more reasonable at 18.09.

 

Our next slice of dividends comes from another company that needs no introduction, Domino’s Pizza, Inc. (DPZ). Operating under its namesake, DPZ currently yields a relatively low 1.30% with a moderately low payout ratio of 41.0% based on current cash flow. While not having a very long dividend history, DPZ does have a very impressive stock chart rising from about $3 a share in November 2008 to over $77 a share today. Like YUM, DPZ has a similar PE of 28.87 placing it in line with peers. Forward PE is also expensive at 23.26. As you can imagine the DPZ stock might be a little too hot to handle at current prices.

 

One reason DPZ and other commodity based companies might be experiencing business tail winds is the result of lower input costs as commodity prices have been crashing in recent weeks. Whether it’s weakened demand, supply glut via bumper crops, stronger U.S. dollar or in some cases all three reasons, commodities have been heading lower. Essential ingredients, such as wheat for pizza dough have been falling dramatically. In fact, wheat prices are at or near four year lows. I know many dividend investors have been eyeing energy companies as oil has dropped but many food companies might also enjoy a more favorable business climate as their input costs go down.

 

Our last piece of the dividend pizza pie is another retailer that needs no introduction, Papa John’s International Inc. (PZZA). Operating under its namesake as well, PZZA currently yields a low 1.40% with a payout ratio of 32.7% based on current cash flow. This is another safe dividend with room for future growth. While lacking an extensive dividend history, the growth of PZZA has been nothing less than stellar. Clearly, each of the three companies mentioned, while not current high yielding stocks, do offer continued fast growth opportunity in the pizza industry. On the valuation side PZZA has the lowest PE of the three companies mentioned at 25.91. Forward PE is a more reasonable 20.26 which indicates a company that is still experiencing rapid growth relative to YUM and DPZ.

 

Clearly, each of the dividend paying pizza companies mentioned are experiencing continued rapid growth. Whether it is foreign growth for YUM’s Pizza Hut chain in China and India or tremendous growth domestically for DPZ and PZZA. The sales and growth of these companies cannot be discounted and while the initial yield may not get you too excited, potential for rapid dividend growth should, especially since the overall industry will be experiencing some much needed business tail winds with falling commodity pricing. I expect continued favorable earnings reports as long as current conditions persist.

 

Are any of these pizza stocks delivering quarterly dividends in your portfolio? Also, what are your thoughts about decreasing input costs for these restaurants and others. Please let me know below.

 

Disclosure: Long YUM

Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net

41 thoughts on “Dividends Delivered In Thirty Minutes Or Less

  1. My own taste buds likes Papa John’s but the investor in me likes YUM! Im slowly adding position of YUM through my loyal3 account. YUM brands business makes more sense globally especially to asian markets giving way for growth (high PE) but not so much in the US as the younger generations shift more on healthier organic foods. Thanks for sharing!
    FFF

    • Hi FF,

      I definitely agree with you that of the three companies mentioned YUM has the most international exposure and is growing immensely abroad. DPZ and PZZA still are experiencing domestic growth although not as fast as YUM’s international growth. I think YUM is a good pizza play and one day we’ll see a YUM spin off of its international assets. Something similar to the KRFT and MDLZ split as KRFT became the more domestic grocery business and MDLZ became the faster growing international snack food business. Thanks for stopping by and sharing your opinion.

  2. Hut,

    I am sure DM will appreciate this article, since he loves a good pizza pie. I wish they had lower P/E ratios, but going forward the look much better. The real question for DPZ and PZZA is can they go international?

    Thanks for making me hungry,
    Gremlin

    • Hi DG,

      I think the high PEs can be justified for all three companies as they are still experiencing growth. YUM is surging ahead internationally and DPZ and PZZA still are growing sales in the U.S. All three companies can be considered growth stocks. For now the question of international growth for DPZ and PZZA, I think, seems a bit premature. They have plenty of domestic growth ahead. Thank you for stopping by and commenting.

    • Hi R2R,

      I try to have fun with titles and content if allowed. Pizza, as I learned is still a growing worldwide business. I think there can be some interesting opportunities with some of the companies mentioned. Also, as input costs have been declining many of these chains will be able to squeeze out higher margins. Something to consider. Thanks for stopping by and commenting.

    • Hi DD,

      Thanks for mention of the other pizza chains. Of course, I like to look at every stock from a dividend perspective. That’s not to say that non-dividend paying companies can’t be great investments, it’s just that I like the concept of getting paid to wait while a stock appreciates. I appreciate your comment.

  3. I own YUM and just added more last week so I’m a fan of what they’re doing. Well what they can do for my money. Liked the title, I was trying to figure out what you were writing about but then it clicked.
    JC recently posted…Recent BuyMy Profile

    • Hi JC,

      Like you, I also own YUM. I really like their rapid international expansion into two of the largest growing markets in the world. That being said all three companies are still experiencing growth which can justify the relatively high PEs each one has. Glad you liked the title and thank you for commenting.

    • Hi Tawcan,

      Everyone loves pizza. It’s one of those universal foods that kids, adults and many different cultures enjoy. YUM has been one of my long term plays for about seven years. I plan to keep it for the long haul. As I commented earlier, I believe YUM will eventually split into two companies as their foreign revenue is exceeding domestic. I think we’ll see a YUM International and YUM in the future. Similar to the KRFT and MDLZ split. Thanks for stopping by.

  4. Excellent post DivHut! To be honest, I haven’t considered investing in a pizza stock, other than YUM with their other holdings. I saw where PIP recently bought into YUM and it got me thinking if I should slowly start to buy in my loyal3 account. I’m currently adding MCD on a monthly basis, so I may have to look at YUM once I build a decent lot or the price goes up.
    Special Agent Dividend recently posted…Monthly Activity – September Investments and DividendsMy Profile

    • Hi SAD,

      YUM has been one of my long time holdings and I plan to keep it for the foreseeable future as they are rapidly expanding into China and India and have seen great foreign growth. To be honest, I never even considered DPZ or PZZA but after seeing their tremendous stock appreciation in recent years you can see that those two companies are still experiencing great domestic growth. I’d like to see a longer dividend history before I jump into those two names but going forward they both look like promising dividend payers. Thanks for commenting.

  5. I’ve been slowly buying YUM through Loyal3, as I quite like the international growth. It’s just icing on the cake that my favorite pizza chain happens to be Pizza Hut!

    Really like your titles – I always try to figure out what you’re going to talk about before reading the post! 🙂
    Seraph recently posted…Recent BuyMy Profile

    • Hi Seraph,

      YUM has been quite popular among several of the dividend bloggers in recent times. I know Passive Income Pursuit and other DGI bloggers have been adding to their YUM positions in recent weeks. There is no denying the insane growth YUM is experiencing overseas. It’s one of the main reasons I have owned it for so long in my portfolio as I see it as a good long term stock and dividend grower. Thanks for sharing your purchase of YUM too via Loyal3. Happy to entertain with my titles as well. Thanks for stopping by.

    • Oups.. sorry… for whatever reason I had problems posting my comment…

      Just wanted to add that i think YUM is an interesting one but like you said the p/e is quite high. Its 5 years average p/e stands at 21 based on Morningstar data. And, I don’t know how Pizza Hut is doing in the states but here in Canada it’s comparable to Red Lobsters…. many Pizza hut restaurants closed doors around here… and the one still opened are not that popular… It’s sad because I personnaly enjoy their pizza and liked to go there once in a while… now I have to drive 45 minutes to find one of their restaurants.

      Thanks
      Allan recently posted…Save! The best homemade pizza recipe ever!My Profile

      • Hi Allan,

        Thanks for the insight regarding the Pizza Hut situation in Canada. Living in the U.S. I would never know that they are struggling in Canada. I wouldn’t worry too much about the high PE for YUM either. I know we like to buy stocks that are at PEs that are below 18 but in the case of YUM you have a fast international growing company and growth companies always command higher PEs. Thanks for stopping by and commenting.

    • Hi Allan,

      Funny. I’m sure you make a great pie but I’ll wait and see if your pizza sales eat into YUM, DPZ or PZZA. Thanks for sharing.

    • Hi Mike,

      I’m very happy to have you here and comment. I try and look at dividends from everyday perspectives and develop dividend themes anyone can relate to. I firmly believe that investing doesn’t have to be hard as long as you know where to look. The most obvious places to start are with the services and consumables we use on a regular basis.

      Thanks for mentioning Nestle and their frozen pizza DiGiorno. As you gathered from the article my focus was more on pizza restaurants. While the stock carries many great billion dollar brands and has been a great performer for many years, I do not like the annual dividend payouts. I much prefer receiving payments on a quarterly basis if possible. Thank you again for stopping by and commenting. I appreciate it.

  6. DivHut,

    Love me some pizza!!!!

    Papa John’s is my favorite pizza chain by far, so there’s a piece of me that wants to invest there. 🙂

    The metrics aren’t that bad for any of them, though I do wonder about headwinds in regards to changing dietary habits of key young customers.

    However, I’m really surprised you questioned the international growth prospects of DPZ and PZZA in an earlier comment? DPZ isn’t far behind Pizza Hut at all with almost 6,000 international stores – more than their domestic store count. I recall reading their 10,000th store opening was in Istanbul. PZZA is also growing pretty aggressively abroad.

    Best regards.
    Dividend Mantra recently posted…Dividend Income Update – September 2014My Profile

    • Hi DM,

      Who doesn’t love pizza, right? It seems that the pizza industry has been bucking the trend of the changing dietary habits of younger customers better than the traditional fast food companies such as MCD. There are many “fresh” pizza option chains coming online and I’m sure the major pizza chains will follow suit with similar offerings. Pizza may not be the healthiest food out there but it sure seems that the stigma of it being bad for you is a lot less than the traditional hamburger and fries combo.

      Regarding the international growth prospect of DPZ and PZZA the context I was trying to convey was that YUM was clearly the international leader and that YUM derives most of its revenues from outside the U.S. while the other chains are more reliant on the U.S. market. I know things aren’t black and white but I was trying to convey overall that YUM was basically an international company while DPZ and PZZA are still very tied to the domestic market and its trends. Thank you for stopping by and commenting. Would love to share a pizza someday and chat dividends with you!

  7. I don’t have any of them, but I do think that investing in fast food brands might be a good idea. The brands are just so strong it’s less likely they will go down in business. It might not the best method, but I feel like I have emotional connection to the brands that I like and it would be awesome to have a share of ownership of them (albeit small!), therefore this is something that I’m considering as well.
    Suburban Finance recently posted…If I am a senior can I be Refused Health Insurance?My Profile

    • Hi SF,

      Anytime you can personally connect with a particular brand you have to ask yourself how many other millions feel the same way. While not a sole reason to invest in a stock, as you should never fall in love with a stock, it does help if you understand the business and can connect to the product or services offered. That being said, many fast food/pizza companies enjoy tremendous brand recognition and loyalty from millions of people worldwide. If nothing else, as you mentioned, this strength typically leads to strong businesses. YUM has been a long term holding of mine and I plan to keep it for many years to come because of this reason and others such as rapid international growth and brand diversification. Thank you for stopping by and commenting.

    • Hi DFG,

      The pizza business is still a growing business believe it or not. Each company definitely has its merits in terms of being potential dividend investments that belong in a DGI portfolio. I would like DPZ and PZZA to have longer payment histories but I think in a few years each will emerge not only as good stocks to own but good dividend growing stocks as well. Thanks for stopping! stopping! by. Sorry had to say it. 🙂

    • Hi HMB,

      YUM is the most diverse and largest of the three. As you mentioned it also has the most diversity as you also get Taco Bell and KFC exposure and revenue as well. China and India are the largest growing markets for YUM as well, and while the other pizza plays also have international exposure the fastest growth seems to come from YUM which justifies the higher PE. Thank you for stopping by and commenting.

  8. I think I would be a little more cautious on pizza only brands ie Dominos and Papa Johns, but YUM brands with other alternate income sources from businesses makes a lot of sense to me.

    Do you know if there is any frozen pizza stocks that offer dividends that would be public, like a Digiorno’s or Red Baron?
    Even Steven recently posted…DIY Landlord and Property ManagementMy Profile

    • Hi ES,

      I happen to agree with you in terms of liking the product diversity of YUM versus DPZ or PZZA. Regarding frozen pizza you can always invest in NSRGY for DiGiorno pizza or you might look at CAG as they sell wood-fired pizza from Wolfgang Puck. Thanks for commenting.

  9. Yum pizza! If I had to choose one on gut feel, I would probably add YUM to my portfolio. It has a higher yield, growth and longer dividend history. PLus, as you mentioned, it gives you exposure to both KFC and Taco bell. This is nice from a divesification business. Also, I am not sure how international Papa Johns and Domino’s is.

    Now if I had to eat a pizza… I would probably go to one of the local joints around town!

    Now i’m hungry…

    Take care!
    ILG recently posted…Recent BuysMy Profile

    • Hi ILG,

      It’s funny how just the mention of pizza gets everyone to utter the word, “yum.” Pizza is one of those awesome foods that seems to transcend many cultures. I happen to like YUM the most of the three companies mentioned but also know that DPZ and PZZA are also rapidly expanding abroad. They may not have the presence of YUM but they are slowly growing their foreign stores. Now go out and get a slice.

    • Hi PIM,

      I thought it would be fun to look at pizza from a dividend perspective. YUM is the definite standout in this space and is in many dividend growth portfolios. I happen to like their very fast growth rate in Asia which accounts for its relatively high current PE. No matter, the initial yield is still decent and the dividend growth is still there. Thanks for commenting.

  10. It’s interesting that independent pizza shops make up 40% of the market – I suppose certain people become loyal to a restaurant and don’t deviate!
    I haven’t tested the waters too much with pizza stocks, but I did purchase Pizza Pizza Royalty Corp on the TSX a few months back. The dividend payout is very high, which concerns me for future growth. Has anyone else bought?
    Jonny recently posted…The Anti-Emergency FundMy Profile

    • Hi Jonny,

      I was surprised to learn that independent pizza shops make up such a high percentage of the pizza market too. I guess the sum of many small parts does in fact create a large whole. I have looked into Pizza Pizza Royalty Corp. (PZA.TO) while writing this article but did not include it as the focus and statistics for the article were based on the U.S. market alone. While PZA.TO does have a decent dividend history I’m not as confident in its future growth as the payout ratio seems a bit high. I’m also curious to know if others have even looked or considered this one. Personally, I like many other Canadian companies instead such as TD, BNS and RY. Thank you for stopping by and commenting.

  11. DivHut

    To be honest, in Belgium we still have some catch’in up to do before we get to the pizza-addiction-level you guys are at 🙂

    YUM seems the one that seems most reliable to me. They have a good presence in China (been there more than a few times) and Europe with pizza hut and deliver unique flavours. Anyone interested in Chicken-finger-pizza with real chicken fingers (no joke) 🙂

    The other ones such as Domino’s pizza etc I’ve never even heard of before I read US blogs so I would be careful if you prefer some international exposure.
    Financial Red Devil recently posted…Passive income for October 2014My Profile

    • Hi FRD,

      Thanks for giving us a first hand account of the pizza business from a Belgian perspective. For my money, I would go with YUM. It is in my portfolio and has been for many years. They are still a growth story overseas and have multiple brands to develop. DPZ has been doing really well in the market lately but going forward I’d rather own the dividend stability of YUM. Thank you for sharing your thoughts.

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