Yum! Brands, Inc. (NYSE:YUM) continues to reward its shareholders with a combination of steady asset appreciation and reliable rising dividend income.
The share price rose with minimal volatility since the company’s incorporation more than two decades ago. Yum! Brands leveraged strong performance in the domestic market and a rapid expansion in international markets into a profitable performance and robust returns on shareholders’ investment.
The share price dipped slightly in July 2018, which inversed the 50-day and 200-day moving averages in a bearish manner. However, the 50-day moving average broke back above the 200-day average by mid-September. The share price rose above both moving averages in mid-January 2019 and remained above as a positive indication of a potentially prolonged price uptrend.
On May 1, 2019, Yum! Brands reported first-quarter 2019 financial results, which ended on March 31. For the quarter, the company reported total revenues of $1.25 billion, which was 8.5% lower than the $1.56 billion revenues from the same period last year. This revenue reduction resulted mainly from a decrease in company-owned restaurants through re-franchising. Comparable sales were 4% higher, which outperformed analysts’ expectations of a 2.7% growth.
Earnings per share (EPS) came in at $0.83 for the quarter with adjusted earnings just marginally lower at $0.82 per diluted share. After coming in at less than half expected earnings in the fourth quarter, adjusted earnings beat analysts’ expectations of $0.81 by 1.23%. Yum! Brands reiterated its of $3.75 adjusted EPS guidance for full-year 2019. However, Wall Street analysts are a little more optimistic and expect EPS of $3.80 in 2019.
Yum! Brands, Inc. (NYSE:YUM)
Headquartered in Louisville, Kentucky, YUM! Brands, Inc., was spun off from PepsiCo (NYSE:PEP) and incorporated as its own business entity in 1997. Together with its subsidiaries, YUM! Brands develops, operates and franchises quick service restaurants worldwide. The company operates through three business segments — the KFC Division, the Pizza Hut Division and the Taco Bell Division. With focus on distinctive types of food offerings – chicken, pizza, and Mexican-style — the three divisions cover a large segment of the food market. As of May 1, 2019, YUM! Brands operated it had 48,457 — 22,886 KFC, 18,466 Pizza Hut and 7,105 Taco Bell location — in approximately 140 countries and territories. Compared to the same period last year, the company opened 606 new restaurants over the trailing 12 months. That growth corresponds to a 1.3% increase in restaurant count. While Pizza Hut and Taco Bell increased their location counts by approximately 0.9%, the KFC division advanced the most with a 1.7% growth rate. Formerly known as TRICON Global Restaurants, Inc., the company changed its name to YUM! Brands, Inc. in May 2002.
YUM! Brands began distributing dividends in 2004 and hiked its annual payout over the subsequent 11 years. During that period, the company advanced its annual dividend payout almost 10-fold and achieved an average annual growth rate of 20.6%. After more than a decade of consecutive annual dividend boosts, the company cut its quarterly payout amount more than 40% at the beginning of 2017. However, Yum! Brands resumed dividend hikes the following year and has enhanced its dividend payout 40% since 2017, which corresponds to an 18.3% average growth rate. Even with the dividend cut in 2017, Yum! Brands still enhanced its annual dividend payout 740% since the onset of dividend distributions in 2004, which corresponds to an average growth rate of 15.2% per year.
The current $0.42 quarterly dividend payout is 16.7% higher than the $0.36 dividend distribution from the same period last year. This new dividend distribution is equivalent to an annual $1.68 dividend payout and currently yields 1.7%. The 2007 dividend cut and a rising share price suppressed the current yield 22% below the company’s own 2.16% average yield over the past five years. Nevertheless, while trailing its own five-year yield average, Yum! Brand’s current yield outperformed the 1.53% average yield of the Restaurants subsegment by nearly 10%.
The company’s current dividend payout ratio of 32% indicates that Yum! Brands currently uses just one-third of its earnings to cover dividend distributions. Furthermore, the current payout ratio is it the low end of the payout ratio’s sustainable range. Therefore, Yum! Brands should have enough earnings to support continued dividend distributions, as well as future hikes. Investors should not be overly concern about dividend cuts until the payout ratio exceed 50%.
Interested investors should be aware that the company’s next ex-dividend date is set for May 15, 2019. On the June 7, 2019, pay date, Yum! Brands will distribute the next round of dividend distributions to all shareholders of record before the ex-dividend date.
Experiencing a small pullback in the second quarter of 2018, the share price declined nearly 8% from the beginning of the trailing 12-month period before reaching its 52-week low of $77.74 on July 5, 2018. After bottoming out in early July, the share price recovered fully by the end of August and continued to rise unaffected by the overall market correction in December 2018. By April 30, 2019, the share price had gained nearly 35% above the July 2018 low and reached its new all-time high of $104.39.
After its new peak, the share price pulled back slightly to close on May 8, 2019, at $100.49. While 3.7% below the April peak, the May 8 closing price was 19% higher than it was one year earlier, as well as nearly 30% above the 52-week low from early July 2018. Additionally, the May 8 closing price was also 87% higher than it was five years ago.
Combined with the dividend income distributions, the share price growth offered a 21% total return on shareholders’ investment. The total return over the three-year period was significantly higher at 81%. However, the shareholders nearly doubled their investment over the past five years with a 97% total return rate.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.