<p>American workers take their coronavirus medicine. But at least they can wash it down with a little Domino’s Pizza (NYSE: DPZ). The DPZ share rose 17% in 2020. And while other restaurants are struggling to keep their doors open, Domino’s is hiring.
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A typical attribute of defensive stocks is their ability to generate revenue despite the broader economic conditions. For this reason, DPZ does not fit the typical definition of a defensive stock. During tough economic times, consumers cut their budgets. And discretionary spending on pizza is one of the first to go.
But these are unusual times. Many Americans have no choice but to stay indoors. All opportunities for travel or entertainment are interrupted. In these times, an evening with a pizza and their favorite streaming service seems to be a great value. And consumers choose Domino’s.
Domino’s hires to meet demand
In response to the increased demand during America’s quarantine, Domino’s will employ up to 10,000 workers to keep pace with that demand. “Our corporate and franchise stores want to make sure they only feed people, but also provide opportunities for those looking for work right now, especially those in the heavily impacted restaurant industry,” says CEO Richard Allison.
DPZ also announced that it will increase its paid leave for both full-time and part-time employees. The company will also pay employees if they need to stay home due to exposure to the virus.
Domino’s continues to deliver a dividend to shareholders
Domino’s is currently paying a dividend of $ 3.12 per share. And in February, the company increased its dividend for the sixth year in a row. And Domino’s has increased its dividend by 19.25% over the past three years.
As many investors judge the damage to their portfolios, it will fly in value. And a dividend of over $ 3 for each share you own gives shareholders fair value.
And with the increased revenue that Domino would receive throughout America’s lock-in period, that dividend should not be in jeopardy. The same does not apply to all companies right now.
Will the Halo effect apply to DPZ shares?
In every crisis, there are stories that confirm what many of us love about America. Domino’s move to hire displaced workers is a good story. And as long as consumers are practicing social distancing, it looks good for DPZ shares.
However, I would like to warn investors that this, like the virus, will also pass. When Americans have the security and freedom to move back to the economy, there will be pent-up demand. But when that happens, the demand for more pizza may be far down the list. So when the US consumer gets the clear signal, expect the DPZ stock to return to Earth.
And even before the crisis ends, Domino’s does not have a moat. The pizza maker still has competition from Yum! Brands (NYSE: YUM) with Pizza Hut and Papa John’s (NASDAQ: PZZA). So far, however, the DPZ share has had a better year than any of its competitors.
Plus, the harsh reality is that hundreds of thousands, perhaps millions of Americans will be out of work for some time. When that happens, it’s not hard to believe that Domino will see a bit of a setback.
The question for Dominos is how much revenue they can bank before it happens. In their latest revenue talk, the company offered forward revenue and profit growth in 2020. But like most companies, Domino’s is likely to adjust revenue and revenue expectations due to the economic impact of the coronavirus.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. At the time of writing, Chris Markoch had no position in any of the above securities.