Monday, October 12, 2009

Net Payout Yield Focus: Yum Brands

Yum Brands (YUM) has been a desirable investment over the last few years because of its presence in China with KFC. As of September 30th, YUM caught our attention as a potential Net Payout Yield stock. On that day, YUM announced a 11% dividend increase and a $300M buyback. Anybody following our Net Payout Portfolio knows that we love stocks that generate plenty of cash to make dividends and buybacks.

With a market cap of over $16B, the buyback is only roughly 2% so not too impressive. Combined with the 2.4% dividend YUM is getting close to a 5% net payout. Somewhat below average but not too bad for a company forecasting 12% profit growth this year. Considering the buyback was higher in 2008, its also possible they'll up the buyback amount as the recovery takes hold.

Considering that YUM provides the unique opportunity of a decent Net Payout Yield and access to the growth of the Chinese consumer this is an ideal candidate for both our Growth and Net Payout Yield Portfolios. With a forward PE around 14, it isn't particularly cheap considering the environment. For that reason we're looking to load up on any dips.

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