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The Recently Recommended Monthly Stock Special
Recently Recommended

The recently recommended company is *Yum! Brands Inc. (YUM)

Company Information:

Created in May 30th, 1997 and based in Louisville, Kentucky, YUM! Brands Inc. (YUM) is one of the world's largest fast food restaurant companies, which develops, operates and franchises the licensed brands Taco Bell, KFC and Pizza Hut worldwide. The company was formerly known as TRICON Global Restaurants, Inc. and changed its name to YUM! Brands, Inc. in May 2002. Its current total market capitalization of $26.8 billion makes YUM a large capitalization stock (a large-cap stock has a market capitalization value of more than $10 billion) with a history of consistent revenues and earnings growth. It is considered a solid and well-diversified business with a wide economic moat and sustainable competitive advantage over its rivals, which enjoys a solid corporate culture.

 

According to Yahoo! Finance, consensus estimates call for the company to earn about $3.92 per share this year, up from $3.55 per share last year, and to go to about $4.48 per share on 2021. Yum! Brands has paid dividends to investors since 2004, and has increased its payments for 2 consecutive years. Its quarterly payment of 47 cents currently provides a yield of 2.71%. The value of dividends reinvestment: A hypothetical investment in YUM has grown cumulatively (including dividends reinvested) 2,271.87% during the past twenty two years. The same investment has grown only 1,642.05% during the same period of time, excluding dividends. According to data and calculations of the financial website dqydj.com, a hypothetical periodic monthly investment of $100 in YUM for the past 22 years would has grown to $196,079, including dividends reinvested.

 

The stock exhibits a healthy Dividend Payout Ratio (DPR is the proportion of earnings paid out as dividends to shareholders) of 42%, which means the company is paying out only 42% of all its net income in dividends, and is retaining some percentage of its earnings to reinvest or grow the business. Its average DPR during the past five years is 47%. Its current Price to Earnings ratio (P/E --a measure of valuation) of 21.56 is 3.2% below the US Market Index. According to Morningstar, the stock is trading 19% below its Fair Value Estimate, making it attractive for investors with a long-term investment horizon.

 

Technically (from the chart’s perspective) YUM also looks attractive, trading 25.5% below its record high, while it is forming a price consolidation pattern between $89 and $120 approximately, in which $89 is acting as a technical support level. The actively managed no-load mutual funds T. Rowe Price Capital Appreciation (PRWCX) and Loomis Sayles Growth Y (LSGRX) are major shareholders of YUM, holding 1.5% and 0.5% of its shares respectively. The stock is also one of the 63 holdings of the mutual fund managed by Moneypaper Advisors, the MP 63 Fund (DRIPX). Emerson’s main competitors are Domino’s Pizza Inc. (DPZ), Wendy’s International (WEN) and Papa John’s International Inc. (PZZA). Volatility and risks: YUM’s five-year Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 0.26, so the stock is 74% less volatile than the Market.

 

Best and worst years since 1998: Its best year was 1998, in which YUM returned, excluding dividends, 72.47%. On the flip side, its worst year was 1999, when the stock declined 22.94%, also excluding dividends. Its dividend re-investment plan charges some fees for cash investing ($5, plus 5 cents per share), for dividend re-investment (5% of the amount reinvested to a maximum of $5) and for selling ($15 plus 12 cents per share). To illustrate those fees: for example, a $100 investment at YUM’s current price would cost a fee of $5.06 or 5.06% of the investment). To minimize the effect of even such small fees, you may want to invest a larger amount but less frequently. The fee for a $300 investment, for instance, would be $5.17 (or 1.72% of the investment). With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term.

 

Disclosure: Mario Medina has no position in Yum! Brands Inc. (YUM), and has no plans to initiate any position in the immediate future. However, the author is the co-manager of the MP 63 Fund (DRIPX), which does hold a position in the company. The author wrote the article himself and it expresses his own opinions. The author has no business relationship with YUM and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Past results illustrated in the article are for reference and educational purpose only and do not guarantee future performance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice.

 

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