Dear Mr. Berko: I read a column of yours years ago in which you recommended Dunkin’ Donuts stock. It sounded pretty good, so I bought 400 shares at $29. The stock is now about $55, but it doesn’t seem to be able to get above that level. Please advise me about whether I should hold or sell. My stockbroker wants me to sell and use the proceeds to buy stock in General Motors. He believes that GM’s sales and earnings will be good this year and next and that the $34-$36 price is a good entry point. Please advise me.
— H.H., Port Charlotte, Fla.
Dear H.H.: Since Dunkin’ Donuts units stopped making doughnuts (company trucks ship them to thousands of locations from central bakeries), their afternoon doughnuts have been dry and yucky. I liked Dunkin’ Brands Group (DNKN-$54.38) before I knew it trucks its doughnuts, and I recommended it to readers in late 2011 when it was $27.
Dunkin’ Donuts has more than 50 varieties of doughnuts and 13,000 franchised locations, 7,800 of which contain a Baskin-Robbins, certainly a tasty combination. Revenues, earnings and dividends have increased nicely in the past six years, as have all the important accounting metrics, especially net profit margins. However, I believe that any appreciable advance in DNKN’s stock price is an uphill slog.
Its doughnuts are scrumptious at 7 a.m., and sometimes I’ll purchase two variety boxes for the folks in the office complex where I write these columns. Those doughnuts complement our coffee service, which provides K-Cup pods from Tim Hortons, Caribou and Cinnabon. DNKN sells the most scrumptious, palatable, delectable, toothsome, succulent and tasty doughnuts, but only between 5 and 11 a.m. In the afternoon, the doughnuts are as stale as Gothic croutons. And after dinner, they’re hard enough that a bite might break a tooth. As a result, DNKN’s business craters in the afternoon.
