Dunkin' Brands Raised Its Dividend 21%, But Is It A Buy?

Mar.23.14 | About: Dunkin' Brands (DNKN)


The company raised its dividend 21% back in February.

The stock is experiencing some bearish momentum.

The company has a really high return on equity.

The last time I wrote about Dunkin' Brands Group Inc. (NASDAQ:DNKN), I stated:

Because the earnings estimates for next year have been lowered, the bearish technicals and the massive amount of capital expenditures take place as a result of the expansion process I will only add a small position in the stock right now because I think I can get it at a lower price.

Since the time the article was published, the stock has popped 8.9% versus the 4.74% gain the S&P 500 (NYSEARCA:SPY) posted. I never got it at a lower price; it just kept going higher, which is a good problem to have. Dunkin' is a franchiser of quick service restaurants serving hot and cold coffee and baked goods, as well as hard serve ice cream in the form of Dunkin' Donuts and Baskin-Robbins, respectively.

On February 6, 2014, the company reported fourth quarter earnings of $0.43 per share, which beat the consensus of analysts' estimates by $0.03. In the past year, the company's stock is up 40.86%, excluding dividends (up 42.58% including dividends), and is beating the S&P 500, which has gained 19.58% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the services sector of my dividend portfolio.


The company currently trades at a trailing 12-month P/E ratio of 38.43, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 24.83 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.44), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 15.72%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 15.72%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 15.78%. Below is a comparison table of the fundamentals metrics for the company from the last time I wrote the article to now.

Article Date

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EPS Next YR ($)

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On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.76% with a payout ratio of 68% of trailing 12-month earnings while sporting return on assets, equity and investment values of 4.7%, 39.5% and 10.2%, respectively, which are all respectable values. The really high return on equity value (39.5%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry.

For comparison, Dunkin' has the third highest ROE out of 13 companies in the mid-cap restaurant industry. It is behind Brinker International (NYSE:EAT), which has a value of 104.9% and Bloomin' Brands (NASDAQ:BLMN), which has a value of 52.8%. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.76% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company from the last time I wrote the article until now.

Article Date

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Looking first at the relative strength index chart [RSI] at the top, I see the stock slowly dropping from overbought territory since 04Mar14 and has a current value of 61.19 with downward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line has crossed below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($52.26), I'm looking at $53.52 to act as resistance and the 20-day simple moving average (currently $51.79) to act as support for a risk/reward ratio which plays out to be -0.9% to 2.41%.

Recent News

  1. CEO Nigel Travis has his contract extended. Mr. Travis has been at the helm since 2008, and the contract will extend him all the way to December 2018. The stock IPO'd back on 05Aug11 and is up 80.64% under his leadership, while the market as represented by the S&P 500 is up 44.42%.
  2. During the company's earnings call in February, Mr. Travis suggested that he may be doing an acquisition in the space.
  3. 7-Eleven has decided to sell 72 of its stores in The States. This reduction should help Dunkin' going forward as it will have less competition to deal with.


The potential for expansion with this company is really important; there is much more to grow. With that said, you kind of have to ignore the fact that it trades at such a high P/E value. Fundamentally, the stock is fairly priced on next year's earnings, but expensive on earnings growth. Financially, the dividend was raised 21.1%. Technically, it appears the stock is experiencing some bearish momentum. Due to the bearish momentum, expensive pricing based on earnings growth, and the low dividend yield, I'm not going to be buying a position at this price.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long DNKN, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.