Why Investing in Domino's Was a Better Bet than Google
"Never depend on a single income. Make investment to create a second source."- Warren Buffett
When we think of investment windfalls in the 21st century, tech giants like Google usually come to mind.
But what if I told you that a pizza company, specifically Domino's Pizza, has outperformed Google since their respective IPOs?
It sounds surprising, doesn't it?
The secret ingredient to this surprising investment success story isn't just the pizza sauce, it's a savvy blend of stock buybacks and dividend payments.
Let's delve into why Domino's was a better investment than Google.
The Basics of Stock Buybacks and Dividends
Before we dive into specifics, let's set the foundation by understanding what stock buybacks and dividends are and why they're important to investors.
Stock buybacks, also known as share repurchases, occur when a company buys back its shares from the marketplace.
This reduces the number of outstanding shares, which can increase the value of remaining shares and earnings per share (EPS).
Dividends, on the other hand, are portions of a company's earnings distributed to shareholders, usually in cash or additional shares.
They can be an attractive feature for investors looking for regular income in addition to any capital gains they hope to achieve from the increase in stock price.
Domino's vs. Google: A Tale of Two Strategies
When Google, now part of Alphabet Inc., had its IPO in 2004, it took Silicon Valley and Wall Street by storm.
Its rise has been nothing short of spectacular, with consistent growth and massive expansion across diverse sectors.
Yet, Google has never paid dividends and only started a stock buyback program in 2015.
Domino's, on the other hand, had its IPO in 2004 as well, a few months before Google.
At that time, it was a struggling pizza chain. In contrast to Google, Domino's started paying dividends in 2013 and has consistently bought back its shares.
The Power of Buybacks and Dividends
From 2004 to 2023, if you invested $10,000 in each company at their IPOs, your investment in Google would be worth around $300,000. A hefty return, indeed.
But, your investment in Domino's? That would be worth a staggering $800,000.
Despite Google's market dominance and impressive growth, Domino's consistent stock buyback program and the initiation of dividends significantly amplified investor returns.
Every time Domino's repurchased its shares, it reduced the number of outstanding shares, effectively increasing the ownership stake of each investor.
This, coupled with Domino's tremendous growth, led to increased earnings per share and subsequently, a higher stock price.
In addition to benefiting from the company's growth, investors also received dividends, a consistent stream of income.
This income could be reinvested to purchase more shares, benefitting from the power of compounding.
Google's late initiation of a buyback program and the lack of dividends mean investors relied solely on capital gains for returns.
While the tech giant's growth was impressive, it did not match the combined power of capital gains, dividends, and the effect of share buybacks that Domino's provided.
Conclusion: An Unlikely Champion
The tale of Domino's outpacing Google is an invaluable lesson in investing. It teaches us that tech is not the only sector that can provide impressive returns and underscores the importance of dividends and buybacks in boosting shareholder value.
The story also emphasizes the power of turnaround companies – businesses that manage to recover from periods of adverse conditions and experience substantial growth, like Domino's did.
Investors must understand that high growth does not necessarily translate into high investment returns. Dividend payments and stock buybacks are critical components of total shareholder
Wrapping up
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