Yum! Gets Doubly Tasty

Much of the news yesterday concerning Yum! Brands (NYSE: YUM  ) was not positive, because of numerous reports of an E. coli outbreak in New York-area restaurants. The shares are down another 2% today, but as a long-term investor, I see some opportunity here and am more focused on the company's announced doubling of its dividend, share repurchases, and international expansion.

Yum!, which had most recently been paying a quarterly dividend of $0.15 per share, announced it will increase its dividend to $0.30 per share. While this doesn't sound like much on the surface, it brings the company's current yield up to 2%, and it marks a tripling of the company's dividend in a little more than two years. From a funding perspective, the dividend should run the company in the neighborhood of $200 million next year. The company's free cash flow of close to $700 million easily covers the dividend.

In the past couple of years, Yum! has also been actively repurchasing its shares. In the past 12 months, my data provider, Capital IQ, shows that the company has executed $1.2 billion in repurchases. The company plans to continue these repurchases, and given its growth opportunities and the valuation based on its free cash flow, I think this is a very shareholder-friendly thing to do.

What I find most interesting about Yum! are its overseas growth opportunities. Yum! is often mentioned in the same breath with Starbucks (Nasdaq: SBUX  ) when it comes to its international growth opportunities, and both companies would certainly like to be mentioned alongside McDonald's (NYSE: MCD  ) as international restaurant powerhouses. Having lived in Japan for a few years, where KFCs are as easy to find as McDonald's (in Japan, KFC is affectionately known as just "Kentucky"), I can attest to the potential for the company to replicate this model elsewhere in Asia. The menu is slightly different, but it's still fried chicken and the brand name is well-recognized. In my mind, the company's targets to have its Asian presence surpass its North American presence seem like a matter of when, not if.

In our Global Gains service, we focus our efforts on companies that call a country other than the U.S. home. But we also pay attention to companies that generate large portions of their revenues and earnings overseas, such as Yum! Brands and Coach (NYSE: COH  ) . They deserve consideration because they offer some of the same diversification and growth opportunities as their internationally headquartered counterparts, particularly when they trade at a reasonable valuation, as Yum! does.

Interested in learning more about companies that do the bulk of their business outside the United States? Take afree trialof our new international investing service, Global Gains.

For more Foolishness on the aforementioned companies, check out:

At the time of publication, Nathan Parmeleeowned shares in Starbucks but had no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy. Starbucks is a Motley Fool Stock Advisor selection.


Read/Post Comments (0) | Recommend This Article (2)

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: 517850, ~/Articles/ArticleHandler.aspx, 8/29/2014 10:13:47 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