3 Reasons Domino's Pizza Stock Can Be a Good Long-Term Buy

Do you want a good dividend growth stock to buy? What about one that also has good growth prospects? If you want to check off both boxes, then one stock you'll want to consider is Domino's Pizza (NASDAQ: DPZ). The pizza chain has more than 21,000 locations over the world, spanning more than 90 markets, and it's still craving much more growth.

The pizza company has been a great investment over the years. Here are three reasons why I'm confident that trend can continue over the long haul.

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1. The brand is a household name with plenty of room to grow

Domino's is a name that has become synonymous with pizza over the years. And through the strength of that brand, there's still a lot of room for the business to get bigger. Currently, close to half of the company's sales come from the U.S. market, and it's still planning to grow there. It projects that by 2028, it will have over 7,700 stores in the U.S. market and in the long run that number will rise to more than 8,500. As of Sept. 8, 2024, it reported having 6,930 stores in the U.S.

Independent franchise owners make up 99% of Domino's locations, which allows the company to grow at a fast rate without having to take on significant financial risk. Without a strong brand and prospective franchisees eager to open up their own Domino's locations, that wouldn't be possible. And that's why Domino's can make for a solid growth stock to invest in for the long term.

2. The company is consistently profitable and earns strong margins

When looking for a good stock to hold long-term, you want to focus on businesses that are largely predictable and that can provide you with some good stability. Over the past five years, Domino's has remained consistently profitable with its gross profit margin also solid at around 40%.

DPZ Profit Margin data by YCharts

These types of steady numbers can be crucial for long-term investors as they minimize the risk of surprises from one period to the next. And this consistency has led to some strong returns for investors as shares of Domino's are up more than 60% over the past five years.

3. It's a dividend growth stock with room for more increases

Domino's pays a dividend that yields 1.3%, which is right around what the S&P 500 averages. It's not a huge payout but the company has been increasing it over the years. Its current quarterly dividend of $1.51 per share has risen by 132% in just five years, averaging a compound annual growth rate (CAGR) of 18% over that stretch.

And despite those generous rate hikes, the stock's payout ratio remains modest at 35% of earnings, which suggests that more dividend increases could be on the horizon. That gives investors even more of an incentive to buy and hold the stock because while the yield may not be all that high right now, the dividend income could rise in the years ahead.

Does Domino's Pizza stock belong in your portfolio?

If you want a good and stable stock to hang on to for the long term, Domino's can make for a great option. There are faster-growing stocks you can invest in and higher-yielding investments you can pursue, but for a good mix of dividends and growth, Domino's is a good all-around option to consider.

While its valuation may not be cheap as it's trading at nearly 28 times its trailing earnings, with a solid brand and strong business, this stock will likely continue to rise in value over time.

Should you invest $1,000 in Domino's Pizza right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Domino's Pizza. The Motley Fool has a disclosure policy.