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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, YUM! Brands, Inc. (NYSE:YUM) has been paying a dividend to shareholders. Today it yields 1.7%. Does YUM! Brands tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does YUM! Brands fare?
YUM! Brands has a trailing twelve-month payout ratio of 31%, which means that the dividend is covered by earnings. Going forward, analysts expect YUM's payout to increase to 41% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.8%. However, EPS is forecasted to fall to $3.84 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
In terms of its peers, YUM! Brands generates a yield of 1.7%, which is on the low-side for Hospitality stocks.
Keeping in mind the dividend characteristics above, YUM! Brands is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for YUM’s future growth? Take a look at our free research report of analyst consensus for YUM’s outlook.
- Valuation: What is YUM 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 YUM is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.