This restaurant chain beat analysts’ estimates by $0.03 last quarter. The chain is in the midst of rebranding itself and is in a high-growth mode.
Dunkin’ Brands Group, Inc. (DNKN)
From Cabot Dividend Investor
Dunkin’ Brands Group, Inc. (DNKN) is the parent company of Dunkin’ Donuts and Baskin-Robbins. The company has over 20,000 stores in 60 countries, all of which are run by franchisees. Originally concentrated in the Northeast U.S., Dunkin’ is expanding its reach across the country and plans to open 1,000 new stores by 2020, with 90% outside the Northeast. In the latest quarter, the company opened 96 new stores and revenue rose 4.9%.
Dunkin’ is also driving growth by improving existing stores. The company recently rolled out a new “NextGen” store design, which is focused more intensely on beverages and simply called Dunkin’. The company expects to have 50 NextGen locations by the end of the year.
Dunkin’ is also simplifying its menu to focus on core items like breakfast sandwiches and coffee. In addition to cutting costs, the change makes life easier for employees and should improve efficiency just as the tightening labor market starts to increase labor costs. Also, just yesterday the company announced that it will drop “Donuts” from its name.
The investments mean capital spending is ticking up a bit, but analysts still expect earnings to grow 12% this year and 9% next year. Over the next five years, earnings growth is expected to average 13% per year.
Dunkin’ was owned by a group of private equity companies until 2011, when it was listed on the NASDAQ. The company started paying a dividend in 2012, and has increased the dividend by an average of 15% per year every year since then. Dunkin’ has a solid yield for a company with this much growth potential.
The company’s payout ratio is falling as earnings grow, and is currently 51%, down from an average of 60% in recent years. Dunkin’s dividend history and earnings growth earn the stock a Dividend Safety Rating of 4.7 and a Dividend Growth Rating of 7.5 (both out of a possible 10 total points).
Finally, there’s the stock. DNKN has been in an uptrend since May, and has strong support from its 50-day moving average, currently at 73. The stock surged 4% to a new all-time high at the start of September, after Coca-Cola’s $5.2 billion bid for Costa Coffee prompted an analyst to speculate that Dunkin’ could be the beverage giant’s next target. Another potential suitor is JAB Holding, the privately-held German conglomerate that owns Peet’s Coffee, Caribou Coffee, Krispy Kreme and Panera Bread.
Takeover speculation aside, DNKN is in a steady uptrend, but isn’t overextended. Earnings growth expectations are strong, the company’s blueprint for growth is showing solid results, and the dividend is steadily rising. I’ll be adding DNKN to our Dividend Growth tier.
Chloe Lutts Jensen, Cabot Dividend Investor, www.cabotwealth.com, 978-745-5532, September 26, 2018