Buy Domino's shares for a 50% return and attractive dividend yield

Morgan Stanley believes investors should be grabbing a slice of this stock.

| More on:
Two parents and two children happily eat pizza in their kitchen as a top broker predicts a 46% upside for the Domino's share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you're wanting a combination of big returns and a decent dividend yield, then Domino's Pizza Enterprises Ltd (ASX: DMP) shares could be the way to do it.

That's the view of analysts at Morgan Stanley, which believe the pizza chain operator's shares are great value at current levels.

What is the broker saying about Domino's shares?

According to a recent note out of the investment bank, its analysts have an outperform rating and $68.00 price target on its shares.

Based on its current share price of $45.20, this implies potential upside of 50% for investors over the next 12 months.

To put that into context, if Morgan Stanley is on the money with its recommendation, a $10,000 investment would be worth $15,000 by this time next year.

Why is it bullish?

The broker believes that the market is too negative on the company's margin outlook. It highlights that the consensus view is that its margins are now structurally lower compared to pre-COVID levels.

However, it sees scope for margins to recover from improved store profitability, lower food costs, and restructuring benefits. In respect to food costs, it estimates that inflationary pressures on these costs have wiped off 2% from its margins.

All in all, the broker believes that "FY24 will be an inflection point for key share price drivers."


But the returns won't stop at share price gains, Domino's is a consistent dividend payer.

Morgan Stanley is expecting a $1.21 per share dividend in FY 2024, which represents an attractive 2.7% dividend yield. This would mean dividends of $270 from a $10,000 investment.

And if you're willing to hold on, you can expect an even better yield next year according to Morgan Stanley. It has pencilled in dividends per share of $1.82 in FY 2025, which would mean a 4% dividend yield for investors.

Motley Fool contributor James Mickleboro has positions in Domino's Pizza Enterprises. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Domino's Pizza Enterprises. The Motley Fool Australia has recommended Domino's Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Consumer Staples & Discretionary Shares

A woman with black afro hair and wearing a white t-shirt shrugs and purses her lips
Consumer Staples & Discretionary Shares

Should I rush to buy this ASX 200 giant currently near its 52-week low?

A number of analysts think this stock is cheap at current levels.

Read more »

Stock market crash concept of young man screaming at laptop on the sofa.

Would I buy this ASX All Ords stock if it flies the nest for the UK?

No time to lounge around. Analysts reckon this Aussie company could voyage to the UK soon.

Read more »

A little girl holds broccoli over her eyes with a big happy smile.
Consumer Staples & Discretionary Shares

3 things about Woolworths stock every smart investor knows

Here’s what you need to know about this stock.

Read more »

Woman thinking in a supermarket.
Consumer Staples & Discretionary Shares

Are Woolworths shares a buy or a sell at under $33?

Should investors be 'buying the dip' with this one?

Read more »

Happy smiling young woman drinking red wine while standing among the grapevines in a vineyard.
Consumer Staples & Discretionary Shares

Treasury Wine share price climbs after China removes wine tariffs

Investors are saying cheers to the Chinese government on Tuesday.

Read more »

A couple of friends at a rooftop party enjoying some hot and tasty Domino's pizza
Dividend Investing

Own Domino's shares? Today is pay day!

Eligible Domino’s shareholders can expect some welcome passive income today.

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Photo of two women shopping.
Earnings Results

Premier Investments share price jumps 9% on results and demerger plans

The Smiggle and Peter Alexander owner has released its results. How did it perform?

Read more »