Recession-Proof Stocks: Yum! Brands

Looking for more juicy dividend stocks to weather a recession? Check out our special series on recession-proof stocks.

We sure seem to be in a recession, don't we? The stock market is sputtering, many people have been losing jobs lately, and scores of economists are wringing their hands. Investors without a healthy perspective are panicking, selling their stocks and subsequently sending prices down. (Was it Chicken Little who cried, "A Market Crash is Coming"?) Investors with a healthy perspective, though, realize that times like these create bargains in the market.

Here's one company you might want to consider. Just look at its historical returns:

Period

Return

2003

42.0%

2004

37.8%

2005

0.2%

2006

26.8%

2007

32.3%

Five-year average annual return

20.9%

10-year average annual return

16.3%

Data from Morningstar.com.

Pretty impressive, eh? It sure looks like a stock that can't be stopped. And if that table gives us one valuable lesson, it's that you shouldn't let a single bad year -- 2005, in this stock's case -- cause you to sell.  

So what company is this? It's no Johnny-come-lately, no obscure highflier. There's a good chance you've helped it grow by buying a pizza, a fried chicken leg, or a Burrito Supreme. It's Yum! Brands (NYSE: YUM  ) , the owner of Pizza Hut, KFC, and Taco Bell, along with Long John Silver's and A&W Restaurants. Put all of its 35,000-plus restaurants together, and you're looking at the world's largest restaurant chain, with more locations than McDonald's (NYSE: MCD  ) (30,000-plus), Burger King (NYSE: BKC  ) (11,100-plus), privately held Subway (29,400-plus), and Wendy's (NYSE: WEN  ) (about 6,600).

Together, Yum!'s restaurants generate more than $10 billion in annual revenue, with a net profit margin of better than 9% -- slightly less than McDonald's 11%, but well ahead of Burger King and Wendy's. Its return on assets, at 12.6%, tops that of McDonald's. The stock recently sported a 2.1% dividend yield, with dividend payments having almost quadrupled since 2004.

Yum! Brands is a good stock to buy by many measures. For instance, if you're looking to take advantage of growth in Asia, Yum! has more than 3,000 restaurants in China, Thailand, and Taiwan. KFC is the top fast-food brand, and Pizza Hut is the premier casual-dining brand in mainland China. Apart from the company's China division, Yum! has more than 12,000 other international restaurants, having added more than 700 each year since 2000. The company is also a multibranding pioneer, with more than 4,000 restaurants worldwide that feature two of the company's brands under the same roof.

No matter how our economy zips or dips, doesn't this seem like a long-term winner?

Fools speak out
If you're wondering whether this would be a good stock for your portfolio, take some time to do a little digging. Our CAPS service, featuring the predictions and commentaries of thousands of successful investors, can be a useful resource. 

Fully 96% of our best-rated CAPS participants believe that Yum! Brands will outperform the market. Check out CAPS player jbobroff's informed opinion from last year: 

I have been to China 3 times in the last year and have seen three very important things: 1) a lot of KFCs and Pizza Hut stores 2) Long lines including lines out the door at a Pizza Hut in Shanghai on a Saturday night and 3) a number of suppliers producing product (packaging, etc) for KFC and talking about the growth of that business. Combine that with increases in wages (20-25% per year) in China creating improving standard of living for the working class (therefore, more customers for quick-service restaurants), a dominance over McDonalds (beef is not as big of a part of the Chinese diet), and a first mover advantage in China, and you have a clear winner for the next 5-10 years.

So what do you think about Yum! Brands? Pop over to CAPS, and enter your own prediction. Let your opinion be counted!

Longtime Fool contributor Selena Maranjian owns shares of McDonald's and Yum! Brands. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.


Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 674428, ~/Articles/ArticleHandler.aspx, 11/23/2014 11:29:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement