Why I think this unloved FTSE 250 dividend stock is a much better idea than investing in a cash ISA
We at The Motley Fool dedicate a not-so-insignificant portion of our time warning about the perils of leaving your savings locked up in a cash ISA or similar cash-based product.
It’s unlikely that you’ll ever be able to retire in comfort if you stash your money away in one of these low-yielding products. For one thing, the ravages of inflation over time will take a sizeable bite out of the value of your capital. But the damage here pales into insignificance compared with the returns you’re likely to have missed out on by not buying into stock markets, for example.
There’s a galaxy of brilliant shares out there that I am convinced should provide better returns that even the best-paying cash ISA. And FTSE 250 business Domino’s Pizza Group(LSE: DOM) is just one of those I am convinced has what it takes to warm the cockles of income-focused investors now and well into the future.
I’ve been a big fan of Domino’s for a long, long time now, even if the broader market remains more sceptical over its growth prospects. The fast food specialist’s share price has shrunk more than 33% in less than five months in response to the shock resignation of chief finance officer Rachel Osborne and then financials which showed a heavy impact of heavy one-off costs on profits.
For my money, though, this sell-off provides an attractive entry point for long-term investors to make a killing. Domino’s, which has long commanded a hugely-expensive paper valuation, now sports a forward P/E multiple of just 15.7 times. This is a bargain given the pace at which revenues continue to rise, as displayed in latest trading numbers.
Last week the pizza powerhouse declared that group sales boomed 5.9% in the 13 weeks to September 30, an impressive performance given the uncertainty in its core UK marketplace and the impact of hot weather in the period. And to make the most of this resilient trading environment, Domino’s remains committed to investing heavily in its supply chain and store network, the business opening an extra 23 stores in the last quarter alone to take the total to well above 1,200.
Given these factors, City analysts are expecting earnings growth to ramp up from an anticipated 2% in 2018 to 11% next year. And this means that dividends are anticipated to keep growing at quite a rate too.
Last year’s 9p per share reward will rise to 9.5p in the current year, or so say the number crunchers, resulting in an inflation-busting 3.7% yield. And for 2019 a 10.5p dividend is projected, thus moving the yield dial to the 4.1% marker.
A quick scan of price comparison website Moneysupermarket.com shows that the best-paying cash ISA currently available boasts an interest rate of just 1.38% (from Leeds Building Society), painfully short of those yields over at Domino’s. The foodie is a far superior selection for savers in my opinion and particularly at current prices.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza and Moneysupermarket.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.