Kentucky-based Yum! Brands Inc. (YUM) recently announced its decision to hike quarterly dividend by 4 cents to 25 cents per share. This translates into a 19.0% increase from the prior dividend. The increased dividend will be paid on November 5, 2010, to stockholders of record on October 15, 2010. This represents the sixth consecutive annual increase in dividend paid by Yum! Brands since its inception in 2004 and brings the forward annual dividend yield as of September 14, 2010, to 1.89%.
Yum! Brands has stepped up shareholder value through a share buyback program. In the second quarter, the company repurchased 2.8 million shares for a total of $115 million, at an average price of $40.0 per share.
Yum! Brands is the world’s largest restaurant company in terms of system restaurants, with more than 37,000 restaurants in over 110 countries. The company has a consistent track record of paying quarterly dividends, supported by its cash position. The dividend policy of Yum! Brands continues to target a payout ratio of 35 to 40% of annual net income. Over the last five-year period, Yum! Brands’ dividend has grown at a rate of 39.8%; a much faster pace than the industry average growth rate of 9.3%.
Last year in September, the company increased its dividend by 11% to 21 cents along with an authorization of 300 million share repurchase.
One of Yum! Brands’ peers, Frisch’s Restaurants Inc. (FRS), announced an increment in its dividend by 15% to 15 cents, last week.
Another peer of the company, Columbus-based Bob Evans Farms Inc. (BOBE), also increased its quarterly dividend by 2 cents to 20 cents, which translates into an 11.1% increase.
Yet another peer, Brinker International Inc. (EAT) increased its quarterly dividend by 27% to 14 cents per share on March 26, 2010, with an intention to boost shareholder value.
Yum! Brands’ forward annualized dividend yield of 1.89% inched past the industry average of 1.53%. However, it lagged forward annualized dividend yields of 2.95%, 3.05% and 3.12% of Bob Evans, Frisch’s Restaurants and Brinker, respectively.
At the end of second quarter, Yum! Brands’ cash balance jumped by 177 million to $530 million. We believe the company has enough cash and cash equivalents to provide optimum shareholder value.
We appreciate Yum! Brands’ efforts to consistently long-term shareholder and franchisee value even in times of an economic downturn. The company has one of the highest returns on invested capital in the Quick Service Restaurants industry. Its dividend and share repurchase programs have returned over $1 billion since 2004 and $6 billion in ten years, respectively, to shareholders. We believe that an increase in dividend payment affirms the company’s optimistic outlook and depicts that it is heading toward strong future growth.
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