As an income-driven investor who doesn't mind the occasional conservatively-yielding dividend play, I've decided to shift my focus to the quick service restaurant sector and highlight several of the reasons behind my decision to remain bullish on shares of Dunkin Brands (DNKN).
#1: Recent Performance & Trend Behavior
On Wednesday, shares of DNKN, which currently possess a market cap of $5.02 billion, a forward P/E ratio of 26.22, and a dividend yield of 1.61% ($0.76), settled at a price of $47.11/share. Based on their closing price of $47.11/share, shares of DNKN are trading 1.37% below their 20-day simple moving average, 0.72% below their 50-day simple moving average, and 10.10% above their 200-day simple moving average. These numbers indicate a short-to-mid-term downtrend for the stock and a long-term uptrend which generally translates into a near-term selling mode for traders and a moderate buying mode for longer-term investors.
#2: 18-Month Dividend Behavior
Since March 15, 2012, the company has increased its quarterly distribution once in the last eighteen months, with the most recent increase having taken place in February of this year. The company's forward yield of 1.61% ($0.76) coupled with its ability to maintain its quarterly distribution over last year-and-a-half, make this particular restaurant play a highly considerable option, especially for those who may be in the market for a conservative stream of quarterly income.
#3: Comparable Dividend Growth
Not only does the company's 1.61% dividend yield and 18-month dividend behavior make this particular stock a highly attractive option for most income-driven investors, its dividend growth over the last eighteen months versus one of its sector-based peers is also something investors should almost certainly consider. From a comparable standpoint, DNKN's dividend has grown a solid 26.67% over the past eighteen months, whereas the dividend growth of its U.S.-based peer Domino's Pizza (DPZ) has decreased 93.33% over the same period.
#4: Looking Ahead To Q4 Earnings
If we begin to look ahead to the company's Q4 earnings estimates, in which analysts are calling for DNKN to earn $0.40/share in terms of EPS (which is $0.01/share lower than the company had reported during Q3) and $178.60 million in terms of revenue (which is $7.7 million lower than the company had reported during Q3), I suspect most investors would like to see a substantial improvement in both categories as DNKN missed Q3 estimates by $0.02/share in terms of EPS and managed to squeak out a beat of $3.36 million in terms of revenue.
If the company can demonstrate an increase of at least 5.5% in terms of its system wide sales growth, a 4.4% increase in U.S. Dunkin Donuts-based sales growth, a 3.8% increase in U.S. Baskin Robbins-based sales growth, and at least a 4.4%-to-4.75% increase in adjusted operating income, I see no reason why such EPS and Revenue estimates can't be met or even exceeded when the company announces its Q4 results sometime in mid-January.
Risk Factors (Most Recent 10-K)
According to the company's most recent 10-K there are a number of risk factors investors should consider before establishing a position Dunkin Brands. These risk factors include but are not limited to:
#1 - Dunkin Brands financial results are directly affected by the operating results of its franchisees, and if poor performance on the franchisee level were to occur long-term operating results could be negatively impacted.
#2 - The terms of the company's indebtedness may restrict its current and future operations and particularly its ability to respond to changes or to take certain actions.
#3 - The company's failure to drive both short-term and long-term profitable sales growth through brand relevance, operating excellence, and the opening of new restaurants under both the Dunkin Donuts and Baskin Robbins brand could result in poor financial performance over the next several years.
For those of you who may be considering a position in Dunkin Brands I'd keep a watchful eye on a number of things over the next 12-24 months as each could play a role in both the company's near-term and long-term growth. For example, near-term investors should focus on the recent performance and trend behavior of the company while longer-term investors should focus on the company's upcoming Q4 earnings as well as its ability to continuously increase its dividend on an annual basis as has been the case over the last year-and-a-half.