Image source: Domino’s Pizza Group plc
FTSE 250 stock Domino’s Pizza (LSE: DOM) doesn’t get much attention from investors. I find that surprising. Over the long term, this company’s generated unbelievable returns for shareholders. Here’s a look at how much I’d have today if I’d bought £2k worth of shares for my portfolio 20 years ago.
14-fold share price return
Back in September 2004, shares in Domino’s were changing hands for about 21p (this means I would have got about 9,500 shares for £2k). Today however, they’re trading for 290p.
That’s nearly a 14-fold return. If I’d invested £2k, I’d now have about £27,600. That’s pretty impressive.
For reference, the FTSE 100 index has only risen about 80% over that period, meaning it hasn’t even doubled.
Dividends on top
But it gets better. You see, over the last 20 years, Domino’s has paid dividends to investors the whole time. I calculate it’s paid about 114p per share in dividends over the period. So if I’d owned 9,500 shares for 20 years, I would have picked up roughly £10,800 in divis (over five times my initial investment!)
Turning £2k into nearly £40k
Add that figure to the £27,600 and we have a total of £38,400. That’s a phenomenal result. Indeed, the kind of return you’d expect from a high-growth tech stock, not a company selling pizzas.
If only I’d had a nibble here back in 2004, instead of speculating on small-cap miners and oil stocks (I lacked experience in the markets back then).
A high-quality business
Now, in hindsight, I’m actually not surprised this company has generated such fabulous long-term returns for investors.
Looking at Domino’s Pizza, it has:
- A well known, trusted brand
- Products that people tend to buy on a regular basis (in economic downturns people often stay at home and order pizza instead of going out)
- A very high level of profitability (return on capital has averaged 30% over the last five years which is outstanding)
- A brilliant dividend growth track record
Overall, it’s a high-quality business. And high-quality businesses tend to deliver attractive returns for their investors (which is why my investment strategy today focuses on quality shares).
Worth buying today?
Now, there are no guarantees the shares will continue to outperform, of course. One risk going forward is market saturation. Looking ahead, the company may not be able to expand at the same rate that it has in the past.
Another risk is changing consumer preferences. Today, healthy food’s becoming more popular and Domino’s Pizza isn’t exactly the healthiest meal.
At today’s price however, I think the shares are worth considering. Currently, they’re well off their highs (roughly 35% below) and trade on a very reasonable price-to-earnings (P/E) ratio of 14.6.
Meanwhile, the dividend yield’s a healthy 3.8%. At that earnings multiple and yield, I think the shares are looking tasty enough to consider.
