Donut Chain's Rally Set to Continue After 21% Dividend Increase

When a company has a proven recipe for delivering tasty eats, as well as profits, traders need to wake up, smell the coffee and dig right in.

On Thursday, donut and ice cream restaurant operator Dunkin' Brands Group ( DNKN )delivered an outstanding earnings report that included a top- and bottom-line beat, a big increase in same-store sales, and even an increase in its quarterly dividend.

The parent company of both Dunkin' Donuts and Baskin-Robbins reported a robust 23% rise in Q4 earnings, logging an adjusted quarterly profit of $42.1 million, or $0.39 a share. Earnings excluding costs came in at $0.43 cents. Revenue spiked 13% year over year to $183.2 million. Analysts had forecasted earnings of $0.40 a share and revenue of $178 million.

As for the all-important same-store sales metric, Dunkin' Donuts saw a 3.5% increase while Baskin-Robbins saw sales rise 2.2% in its U.S. stores. Internationally, Dunkin' stores' sales fell slightly, dropping 0.3%, while Baskin-Robbins saw a 1.6% bump.

The company attributed the strong sales metric to higher store traffic and an improved average ticket at its U.S. stores. It also said its new beverage products such as iced coffee and flavored hot and iced espressos did well in Q4. It expects 6%-8% revenue growth and 17%-20% EPS growth for 2014.

One move that made a lot of headlines was Dunkin's dividend increase. The company sweetened shareholders' plates with a 21% quarterly dividend boost to $0.23 a share.

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The increased dividend, along with the strong quarterly fiscal metrics, boosted DNKN as much as 7% in Thursday trade to a new 52-week high before shares pulled back some.

I think there's a lot more upside to come in DNKN. My bullish expectations are based on the company's relentless expansion efforts, as well as its consistent earnings recipe.

Right now, the Dunkin' brand is mainly in the eastern part of the United States, but that will soon be changing. Earlier this month, Dunkin' announced a plan to open some 400 Dunkin' Donuts restaurants throughout the country, with up to 20% of those in western states such as Colorado, Texas, and my home state, California.

The expansion to western states is going to be really big for Dunkin', and as my Profitable Trading colleague Melvin Pasternak wrote in November , "Since the stores are almost entirely operated by franchisees, continued expansion should mean an influx of franchise fees and royalty income, along with minimal operating expenses. That's a formula for strong future profit growth."