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DPZ Stock Has Become a Timely Defensive Stock

Domino’s Pizza is meeting American needs at a crucial juncture

American workers are taking their coronavirus medicine. But at least they can wash it down with a little Domino’s Pizza (NYSE:DPZ). DPZ stock is up 17% in 2020. And while other restaurants are struggling to keep their doors open, Domino’s is hiring.

DPZ Stock Has Become a Timely Defensive Stock
Source: Ken Wolter / Shutterstock.com

A typical attribute of defensive stocks is their ability to generate revenue despite the broader economic conditions. For that reason, DPZ does not fit the typical definition of a defensive stock. In tough economic times, consumers cut their budget. And discretionary spending on takeout pizza is among the first to go.

But these are unusual times. Many Americans don’t have a choice as to whether they stay inside. Any opportunity for travel or entertainment is cancelled. In these times, an evening with a pizza and their favorite streaming service seems like a great value. And consumers are choosing Domino’s.

Domino’s Is Hiring to Meet Demand

In response to the increased demand during America’s quarantine, Domino’s will hire up to 10,000 workers to help keep up with that demand. “Our corporate and franchise stores want to make sure they’re only feeding people, but also providing opportunity to those looking for work at this time, especially those in the heavily-impacted restaurant industry,” said CEO Richard Allison.

DPZ also announced that it will expand its paid leave for both full-time and part-time employees. The company will also pay employees if they need to stay home due to exposure to the virus.

Domino’s Continues to Deliver a Dividend to Shareholders

Domino’s currently pays out a dividend of $3.12 per share. And in February, the company increased its dividend for the sixth consecutive year. And Domino’s has been increasing its dividend at a rate of 19.25% for the last three years.

As many investors assess the damage to their portfolios, there will be a flight to value. And a dividend of over $3 for every share you own offers shareholders real value.

And with the increased revenue that Domino’s should receive throughout America’s lock-in period, that dividend should be in no danger. The same is not true for all companies at this time.

Will the Halo Effect Last for DPZ Stock?

In every crisis, there are stories that reaffirm what many of us love about America. Domino’s stepping up to hire displaced workers is a feel-good story. And as long as consumers are practicing social distancing, things look good for DPZ stock.

However, I would caution investors that, like the virus, this too shall pass. When Americans have the security and freedom to move back into the economy, there will be pent-up demand. However, when that happens, demand for more pizza may be far down on the list. So, whenever the American consumer gets the all-clear signal, expect to see DPZ stock come back down to earth.

And even before this crisis ends, Domino’s doesn’t have a moat. The pizza maker still has competition from Yum! Brands (NYSE:YUM) with Pizza Hut and Papa John’s (NASDAQ:PZZA). However, so far DPZ stock is having a better year than either of its competitors.

Plus, the harsh reality is that hundreds of thousands, perhaps millions, of Americans will be out of work for some time. When that happens, it’s not hard to believe that Domino’s will see a bit of a pullback.

The question for Domino’s is how much revenue they can bank before that happens. In their most recent earnings call, the company offered forward revenue and earnings growth in 2020. However, like most companies, Domino’s is likely to adjust earnings and revenue expectations due to the economic impact of the coronavirus.

If you own DPZ stock, there’s no reason to sell. However, if you’re looking at the stock as a long-term stock, I think you may want to hold for more direction.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/03/dpz-stock-timely-defensive-stock/.

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