Yum! Brands, Inc.’s YUM board of directors recently approved a 20% rise in quarterly cash dividend to 36 cents per share of common stock from 30 cents. It will be distributed on Mar 9, to shareholders of record on the closing of business as on Feb 14.
Shares of the company have rallied 31.2% in the past year, outpacing the industry’s gain of 22.3%.
Dividend Hike to Lure Shareholders
Notably, Yum! Brands raised its quarterly dividend despite a 33% year-over-year decline in net income in the first nine months of 2017. This underscores management’s plan to lure investors with attractive returns. In fact, over the next three years, the company is committed to returning an additional $6.5 billion to $7 billion to shareholders through stock repurchases and dividends.
Refranchising to Enhance Shareholders’ Value
The company has adopted a de-risking strategy by reducing its ownership of restaurants through refranchising. This reduces capital requirements and facilitates earnings per share growth and ROE expansion. Refranchising also boosts free cash flow, facilitating reinvestments to increase brand recognition and shareholders’ return.
In third-quarter 2017, Yum! Brands increased its franchise ownership to 95% and is committed toward becoming at least 98% franchised. In fact, it expects to possess less than 1,000 company-owned restaurants by the end of 2018.
Management expects to cut capex to about $100 million by 2019, increase free cash flow conversion to 100% and also reduce General and Administrative (G&A) expenditure by approximately $300 million (or 1.7% of system sales). Resultantly, earnings are expected to be at least $3.75 in 2019.
Zacks Rank & Stocks to Consider
Yum! Brands carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the restaurant space include Darden Restaurants DRI, McDonald's MCD and Domino's Pizza DPZ. While Darden flaunts a Zacks Rank #1 (Strong Buy), McDonald’s and Domino's carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Darden, McDonald’s and Domino's earnings are expected to grow 17.4%, 10.5% and 36.8%, respectively, in 2018.
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