Why Buying Yum China Holdings Inc (NYSE:YUMC) For Its 1.15% Dividend Could Be A Mistake
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Recently, Yum China Holdings Inc (NYSE:YUMC) has returned an average of 1.00% per year to shareholders in terms of dividend yield. Does Yum China Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for Yum China Holdings
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
Is it paying an annual yield above 75% of dividend payers?
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has it increased its dividend per share amount over the past?
Is its earnings sufficient to payout dividend at the current rate?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Yum China Holdings fare?
The company currently pays out 22.93% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect YUMC’s payout to increase to 28.39% of its earnings, which leads to a dividend yield of around 1.36%. In addition to this, EPS should increase to $1.62. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Yum China Holdings as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether YUMC one as a stable dividend player.
Relative to peers, Yum China Holdings has a yield of 1.15%, which is on the low-side for Hospitality stocks.
Next Steps:
After digging a little deeper into Yum China Holdings’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three relevant aspects you should look at:
Future Outlook: What are well-informed industry analysts predicting for YUMC’s future growth? Take a look at our free research report of analyst consensus for YUMC’s outlook.
Valuation: What is YUMC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether YUMC is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
