Taking Stock: Dunkin' Donuts

Dear Mr. Berko: Last November, I bought 45 Dunkin' Donuts shares at $25, and now its $33. Do you think it will raise its dividend? I want to know if I should sell 60 Raytheon shares and I2 Apple and 76 Lockeed, which I have a good profit in. I will use that money to buy higher dividend stocks because I'm quitting working at 62. I want you to recommend good, high-income stocks for me and I want you to give me some stocks to make good profits also. My monthly insurance settlement stops at 65. My medical disability, VA and Social Security check aren't enough to pay my monthly bills. My lawyer said he can get me food stamps and public housing assistance when I quit work but isn't sure. So I need to take money from this account to support myself. I depend on you to help me.

--TR in Detroit, Mich.

Dear TR: It seems that you already have a lot of help and are not shy about asking for more. Where do you find lawyers like this snollygoster? But a fellow smart enough to buy good stocks is certainly clever enough to troll for lawyers. You sir, in an unusual way, have earned my admiration.

I'll give you a guaranteed ''maybe'' that Dunkin' Donuts (DNKN-$33) will raise its dividend. I'm equally certain that DNKN will grow 2012 revenues to $678 from 2011's $628 million, then on to $725 million in 2013. And earnings, which were 94 cents in 2011, should rise to $1.27 this year and $1.48 in 2013. DNKN's revenue stream derives from the sale of outstandingly gustable donuts, bagels, coffee, ice cream, fresh baked goods, frozen beverages and sandwiches via 10,500 Dunkin' Donuts and 6,800 Baskin Robbins units in the U.S. DNKN's future revenue stream will be driven by an annual 5 percent increase in U.S. units and entry to Asia like New Delhi, India where its flagship store opened to enthusiastic crowds. In the coming years, DNKN hopes India will be a super source of donut revenue, as are shredded pork and dried seaweed donuts in China. Perhaps DNKN can open units in Pyongyang, giving North Koreans a taste of American Imperialism. But I'm not as sanguine about its share price. I think there are only a few points remaining before its shares hit the wall. DNKN's revenues pale in comparison to its staggering $1.4 billion debt dumped on its balance sheet when it was kidnapped by a consortium of Private Equity firms that some call the ''gangbangers of Wall Street.'' Bain Capital, Carlyle, and Thomas Lee Partners hijacked 100 percent of DNKN in 2006 for $2.4 billion, using $1 billion of their capital and $1.4 billion of debt they glued to DNKN's balance sheet. This debt, greater than the combined debts of Poppa Johns, Tim Horton's, Starbucks, Krispy Kreme, Bob Evans, P.F. Chang's, Panera Bread, Chipotle Mexican Grill, The Cheesecake Factory and Cracker Barrel, borders on fraud. Soon after, these three ''gangbangers'' engineered themselves a sweet, tax-free $500 million dividend. And last year, they arranged to ransom DNKN public again. That ransom, an IPO of 25 percent of all the shares owned by Bain, Carlyle and Thomas Lee, added another $600 million ransom to their slush, plus a $63 million tribute paid by Goldman, JPMorgan, Deutsche Bank and others who ran the IPO book. Today, these gangbangers have all their money back plus a $12 million caretaker's fee for each of the past 5 years for a net take of $223 million. But there's more. The gangbangers still own 75 percent of DNKN worth $4 billion, and except for a grossly inflated stock price, not a penny of value was added in the past 6 years. This huge stock overhang puts a damper on the future share price, as does the repayment of its $1.4 billion of outrageous ransom. The franchisees gotta sell a lots of donuts so DNKN can pay that ransom.

I'll give you a guaranteed ''maybe'' that Dunkin' Donuts (DNKN-$33) will raise its dividend. I'm equally certain that DNKN will grow 2012 revenues to $678 from 2011's $628 million, then on to $725 million in 2013. And earnings, which were 94 cents in 2011, should rise to $1.27 this year and $1.48 in 2013. DNKN's revenue stream derives from the sale of outstandingly gustable donuts, bagels, coffee, ice cream, fresh baked goods, frozen beverages and sandwiches via 10,500 Dunkin' Donuts and 6,800 Baskin Robbins units in the U.S. DNKN's future revenue stream will be driven by an annual 5 percent increase in U.S. units and entry to Asia like New Delhi, India where its flagship store opened to enthusiastic crowds. In the coming years, DNKN hopes India will be a super source of donut revenue, as are shredded pork and dried seaweed donuts in China. Perhaps DNKN can open units in Pyongyang, giving North Koreans a taste of American Imperialism. But I'm not as sanguine about its share price. I think there are only a few points remaining before its shares hit the wall. DNKN's revenues pale in comparison to its staggering $1.4 billion debt dumped on its balance sheet when it was kidnapped by a consortium of Private Equity firms that some call the ''gangbangers of Wall Street.'' Bain Capital, Carlyle, and Thomas Lee Partners hijacked 100 percent of DNKN in 2006 for $2.4 billion, using $1 billion of their capital and $1.4 billion of debt they glued to DNKN's balance sheet. This debt, greater than the combined debts of Poppa Johns, Tim Horton's, Starbucks, Krispy Kreme, Bob Evans, P.F. Chang's, Panera Bread, Chipotle Mexican Grill, The Cheesecake Factory and Cracker Barrel, borders on fraud. Soon after, these three ''gangbangers'' engineered themselves a sweet, tax-free $500 million dividend. And last year, they arranged to ransom DNKN public again. That ransom, an IPO of 25 percent of all the shares owned by Bain, Carlyle and Thomas Lee, added another $600 million ransom to their slush, plus a $63 million tribute paid by Goldman, JPMorgan, Deutsche Bank and others who ran the IPO book. Today, these gangbangers have all their money back plus a $12 million caretaker's fee for each of the past 5 years for a net take of $223 million. But there's more. The gangbangers still own 75 percent of DNKN worth $4 billion, and except for a grossly inflated stock price, not a penny of value was added in the past 6 years. This huge stock overhang puts a damper on the future share price, as does the repayment of its $1.4 billion of outrageous ransom. The franchisees gotta sell a lots of donuts so DNKN can pay that ransom.

If you decide to sell Raytheon, Lockeed, Apple and DNKN, I suggest you ring Schwab, who will be pleased to help you find suitable income investments and save you a king's ransom on commission costs.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@ yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com

Published: Thu, Aug 9, 2012

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