Why Yum! Brands' Higher Dividend Should Make You Hungry to Invest

NEW YORK (TheStreet) -- Since reaching a high of $83.58 two months month ago, shares of Yum! Brands (YUM) have fallen more than 13%. At around $73 currently, shares are off nearly 4% for the year to date.

But the company wants to get investors excited again and recently boosted its dividend 11% to 41 cents per share from 37 cents. This now puts the forward yield at 2.25% compared to the average yield of 1.77% for all of the companies in the S&P 500

Here are other reasons Yum! should whet your appetite.

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This is the tenth year in a row Yum!, whose restaurants include KFC, Pizza Hut and Taco Bell, has increased its dividend by a double-digit percentage rate -- one of the longest streaks on the market. For Yum! to raise its dividend given the struggles in markets like China is an encouraging sign about the company's underlying strength.

More importantly, a dividend increase signals the confidence management has about the company's future. Over the past five years Yum! has delivered roughly $6 billion back to shareholders in buybacks and dividends.

Beginning in January, Greg Creed, currently CEO of Taco Bell, will take over as CEO of Yum! Brands. Given the success of Taco Bell, Creed seems like a logical choice. His "outside the bun thinking" spawned the creation of Doritos Locos Tacos, which has become one of the fastest-growing new products in the history of fast food. Yum!'s ability to differentiate itself from rivals including McDonald's (MCD) , Burger King (BKW) and Wendy's (WEN) will be key to its long-term growth.

So having a product innovator like Creed adds a meaningful boost to the company's long-term earnings potential. Yum!'s new restaurant initiatives, which focus on healthy doses of protein to better compete with Chipotle Mexican Grill (CMG) , is a good start.

Likewise, one of Creed's main objectives will be to help Yum! emerge from a rash of negative publicity out of China, its largest market. As of the second quarter, Yum! operated some 6,400 restaurants in China, generating roughly 30% of systemwide profits.

China is the company's most important segment. In the most recent quarter, Yum! delivered a 30% year-over-year jump in earnings per share and reaffirmed its full-year guidance of EPS growth at 20% -- only a few months after an undercover news report that Shanghai Husi, a division of supplier OSI Group LLC, deliberately re-labeled expired meat for use in a number of China's restaurants, including Yum!'s.

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Yum! has dealt with supplier-related issues in the past. Each time Yum! has risen to the challenge. The company's recent dividend increase affirms management's confidence that Yum! can continue to deliver long-term value to its customers and shareholders.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @Richard_WSPB

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates YUM BRANDS INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate YUM BRANDS INC (YUM) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations, increase in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

You can view the full analysis from the report here: YUM Ratings Report

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