Last week we placed trades to bring Domino’s Pizza (DPZ) up to a full position size. The AMM Dividend Growth Strategy is a concentrated strategy and it will hold at most 28 full sized positions. Domino’s has been in the portfolio since November 2020 but at a 1/3rd position size. In order to bring it up to a full position size, we needed to raise cash from other positions. We targeted Yum Brands and Walt Disney as sources of cash*.
Some accounts had trades in both positions, in one position, or none if the account had sufficient cash for the buy order.
Disney cut their dividend completely during the first summer of Coronavirus. Instead of selling the position outright, we reduced Disney to a half position. We still liked its long-term growth potential; especially its burgeoning streaming business. And once its amusement parks fully reopened, we expected Disney’s dividend to be reinstated.
Recently Disney management clarified their thinking on reinstating a dividend. Based on the financial and operational criteria they outlined we determined that they wouldn’t start paying a dividend again for at least another year.
We don’t want to wait another year for Disney to reinstate a dividend if we can find a more attractive dividend growth company now. We decided to make Disney a source of cash if and when that attractive investment presented itself. Given the recent market sell-off, that opportunity presented itself in Domino’s.
We still like Yum Brands and we believe it will still be a good investment from here but we think Domino’s will be a better dividend growth investment. Also, when we added Domino’s the portfolio tilted heavily towards quick serve restaurants including McDonald’s, Yum Brands, Domino’s Pizza, and Starbucks. Reducing or eliminating exposure here makes sense for diversification reasons.
We haven’t eliminated Yum Brands entirely from the portfolio. We used some of the capital that was invested in Yum Brands to add to our position in Domino’s, but only if an account was low on available cash. Ultimately, we expect to sell out of Yum Brands entirely if/when another investment opportunity presents itself.
If you would like to discuss these trades further or if you have any other questions, please don’t hesitate to contact us.
