Domino's shares gain as Morningstar sees strong dividend growth
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The news: Shares in Domino's Pizza gained on the ASX as Morningstar flagged that the pizza chain offers the strongest dividend growth outlook on its 'Best Ideas' list.
The numbers: Domino's shares were up 3.1% to $32.49 by 11:50am AEST, having lost over 40% since the start of the year.
Morningstar analyst Lochlan Halloway said that the market underestimates the "massive growth potential" of Domino's global network, which Morningstar expects to approach 6,000 stores in 10 years, from less than 4,000 today.
The context: Halloway said that as Domino's network expands, dividends should follow. While recent trading conditions have been challenging, he noted that the company is a "globally recognised, moat-worthy brand, and we forecast a rebound".
Elsewhere, APA Group's 7.5% yield makes it the highest yielding stock on Morningstar's 'Best Ideas' list, with analysts expecting dividend growth of around 4% annually over the next five years.
Aurizon is second on the list, trading at a 5.8% yield, with a strong outlook for dividend growth at a forecast 7% compound annual growth rate over the next five years.
Dexus, Santos, and Endeavour were also part of the highest yielding stocks list.
More widely, Halloway noted that FY24 was a "tough year" for income investors, with total dividend payments "essentially flat" from the benchmark ASX 200 stocks.
While FY24 was an improvement on FY23 — when dividends fell almost 10% — FY25 "doesn't look much better," Halloway said.
The basic materials sector, which accounts for almost of a third of dividend payments under Morningstar's coverage, is "the big laggard", with China's subdued growth outlook posing a significant headwind for bulk commodity miners.
Halloway said the picture "improves modestly" in FY26, with the big winners likely to come from cyclical sectors such as consumer, industrials and financials, which should benefit from an upturn in economic activity as inflation cools and central banks ease monetary policy.
Morningstar’s 'Best Ideas' are selected on valuation and quality, and are not tailored to a specific investment style.
The source: Morningstar research
