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Yum! Brands Enhances Shareholder Returns, Hikes Dividend

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In a shareholder-friendly measure, Yum! Brands, Inc. (YUM - Free Report) announced a hike in its dividend payout. This is reflective of the company’s intention to utilize free cash for enhancing shareholders’ returns.

The company declared a 17% hike in its quarterly dividend. Yum! Brands raised quarterly dividend to 42 cents a share (or $1.68 annually) from the prior payout of 36 cents (or $1.44 annually). The increased dividend will be paid on Mar 8 to its stockholders on record as of Feb 14. The dividend yield, based on the new payout and the last closing market price, is approximately 1.8%.

Notably, dividend hikes not only enhance shareholder returns but also raise the market value of the stock. Therefore, companies often tend to attract new investors and retain the old ones through this strategy.

The company has earlier said that it is committed to return an additional $6.5-$7 billion to its shareholders through share repurchases and dividends over the next three years. Resultantly, the company expects EPS of at least $3.75 in 2019. On the international front, Yum! Brands aims to revamp its financial profile and thereby improve the efficiency of its organization and cost structure. By 2019, management expects to cut capex to about $100 million, increase free cash flow conversion to 100% and reduce General and Administrative (G&A) expenditures by approximately $300 million (or 1.7% of system sales).

Price Performance

Yum Brands’ efforts to boost its three iconic global brands and create more efficient cost structure are quite encouraging. Shares of the company have outperformed the industry in the past six months. The stock has gained 18.7% compared with the industry’s 14.8% growth.

Further, Yum! Brands has adopted a de-risking strategy by reducing its ownership of restaurants through refranchising. In fact, the China division’s spin-off has largely made Yum! Brands a more asset-light company. In third-quarter 2018, the company had franchise ownership of nearly 98%.

Zacks Rank & Key Picks

Yum Brands has a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Wingstop Inc. (WING - Free Report) , Darden Restaurants, Inc. (DRI - Free Report) and The Habit Restaurants, Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wingstop earnings have surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 12.8%.

Darden Restaurants’ long-term earnings is expected to grow by 10%.

Habit Restaurants long-term earnings is anticipated to grow by 20%.

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