YUM! Brands—a dividend stock from a shareholder’s perspective

Market Realist

Must-know: Yum! Brands quarterly overview 2Q14 (Part 13 of 13)

(Continued from Part 12)

Yum! Brands from a shareholder’s perspective

The company’s earnings per share (or EPS) grew by 20% to $0.73 and revenues grew by 10% to $3.2 billion in the 2Q14 compared to an EPS of $0.61 and revenue of $2.9 billion in the same quarter last year.

Dividend

The company has been paying a dividend for nine years and its current dividend yield is ~2%. This is compared to a dividend yield of 3.2% of McDonald’s (MCD), 3.8% of Darden Restaurants (DRI), and a 1.9% dividend yield of Brinker International (EAT). The dividend yield chart above compares Yum! Brands with three of its competitors over five years. With excess cash, the company plans to return to shareholders through share repurchase. As of June 14, 2014, the company had repurchased shares worth $300 million. It had a remaining capacity to repurchase share worth $643 million. An i nvestor looking to invest in the  restaurant industry can gain exposure through exchange-traded funds (or ETFs) like the PowerShares Dynamic Leisure and Entertainment ETF (PEJ) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

Share repurchase

When a company repurchases shares, it reduces the number of outstanding shares in the market which increases the EPS and the value of the share. An investor must also use caution because share repurchase could also mean that the company doesn’t have many growth opportunities and is returning the excess cash to shareholders.

Despite the setback in China relating to its meat suppliers and flu  outbreaks, the company has been able to grow its EPS, revenues, and margins. This displays a strength in the business model and a reason to believe that Yum! Brands seems to be a good investment.

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