Domino's Pizza Inc (DPZ) announced today (pre-market) a huge $1.00 increase in its dividend per share, or +14.3%, after its Q4 free cash flow rose over 29% YoY and 31% in 2025. As a result, value buyers love DPZ stock as it looks undervalued.
DPZ is up $10.00 today at $394.58 per share in morning trading, +2.6%. It could have over 20% upside, based on its average historical yield and FCF margin projections. This article will show why.
Moreover, investors who short out-of-the-money (OTM) one-month puts and also buy longer-dated in-the-money (ITM) calls can make good money. I discussed this in a recent Barchart article, “Analysts See Domino's Pizza Stock As Too Cheap Ahead of Earnings Next Week.”
Domino's Strong Free Cash Flow Results
Domino's reported today that its revenue rose 6.4% in Q4 YoY to $1.54 billion and was up 5.0% for 2025 to $4.94 billion. That was well over market expectations of $1.17 billion for Q4, according to Seeking Alpha.
In addition, its free cash flow (FCF) for the year was $671.2 billion, up 31.2% YoY. That implies that the Q4 FCF result was $175.92 million, according to Stock Analysis, a 29.2% YoY gain.
Moreover, its FCF margin (i.e., FCF/sales) was 11.5% in Q4, up from 9.41% last year, and 13.6% in 2025 vs. 10.9% last year and even higher than the trailing 12-month (TTM) margin 13.03% last quarter.
In other words, cash flow exploded in Q4 and for all of 2025.
Dividend Per Share (DPS) Rises 14.3% - Implies DPZ is 20% Too Cheap
That could be why management announced a huge 14.3% increase in its dividend per share (DPS). It is now $1.99 per quarter, up $0.25 from $1.74, as well as $7.96 annually, up $1.00 from $6.96 in the last 12 months.
That means that DPZ stock now has a forward dividend yield of just over 2.0%:
$7.96 forward DPS / $394.58 = 0.0202 = 2.02%
That is well over its historical yield average. For example, Yahoo! Finance reports that its average 5-year yield has been 1.17% and Morningstar says it's been 1.11%.
Moreover, even last year, the average yield was 1.67%, according to Morningstar.
That implies DPZ is still at least 20% undervalued, if it were to trade at last year's average yield. Here's how that works:
$7.96 DPS / 0.016y avg yield = $476.65 price target
$476.65 / $394.58 = 1.208 -1 = +20.8% upside
That's not the only way to value DPZ stock. Another simple way is to use FCF margin analysis.
FCF Forecasts and FCF Yield Price Target
For example, analysts now project that Domino's 2026 revenue will rise to $5.23 billion. And for 2027, they project $5.44 billion in revenue.
That implies the next 12-month revenue (NTM) will be $5.335 billion.
So, if the company continues to generate FCF at a 13.6% margin as it did during 2025, FCF will rise to
$5.335b x 0.136 = $725.6 million FCF
That's 8% higher than last year's $671.2 million.
Moreover, using a 5.0% FCF yield metric implies that DPZ stock could have a $1 billion higher market cap, or 7.6% higher than today's $13.5 billion mkt cap. Here's why:
$726m FCF / 0.05 = $14.52 billion market cap
$14.52b / $13.5 b mkt cap today = 1.0756 -1 = 7.6% upside
In other words, the FCF margin and FCF yield price target is 7.6% higher:
$394.58 x 1.076 = $424.57 price target
Summary and Conclusion
Investors can expect DPZ stock to rise over the next year, based on its average dividend yield and its strong FCF margins.
The average DPZ price target (PT) is between $425 (FCF yield) and $477 (dividend yield), or $451 per share. That's 14% higher than today's price.
Moreover, other analysts have even higher price targets. Yahoo! Finance reports that 33 analysts have an average PT of $482.97, and AnaChart's survey of 24 analysts is $448.91.
The bottom line is that value investors love DPZ stock here, given its strong free cash flow and dividend results. Domino's share repurchases will also help push DPZ stock higher and help increase its underlying value.
I will follow with a new article on my Feb. 17 Barchart article on out-of-the-money short-put DPZ plays and in-the-money (ITM) DPZ call option long purchases.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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