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.