YUM Stock: 3 Reasons to Be Bullish on Yum! Brands, Inc.
Yum! Brands, Inc. (NYSE:YUM) is one of the largest restaurant operators in the world with more than 43,000 restaurants in more than 130 countries. Yum! stock’s restaurant brands, including Kentucky Fried Chicken, Pizza Hut, and Taco Bell, are some of the most recognized brands in the world.
In 2015, YUM stock wavered up and down, but it ended the year essentially flat. But even though last year was a bit disappointing for YUM stock, 2016 should fare better, as CEO Greg Creed sees this year being a transformational one for Yum! Brands, Inc.
Here are three reasons why 2016 may be a positive year for YUM stock…
Growth
In 2015, Yum! opened more than 2,300 restaurants worldwide and the company is looking to keep up with that pace in 2016. Yum! plans to open an additional 2,400 restaurants by the end of the year.
All these store openings should fuel future growth. CEO Greg Reed said in the latest earnings report that the company expects to see 10% operating profit growth in constant currency in 2016 compared to last year.
The company’s Taco Bell restaurants also just launched a $1.00 breakfast menu that it is hoping can spark sales growth the way McDonald’s Corporation’s (NYSE:MCD) all-day breakfast menu has.
China Spin-Off
Yum! Brands is planning to spin off its China division into Yum! China by the end of the year. The spin-off will separate the Chinese division into a new company.
According to Reed, the China spin-off “will have a more stable earnings stream typical of a franchise company powered by industry-leading brands, while also benefiting from the development of the China business as a unique growth engine.”
He adds, “In turn, our China business is self-sufficient and scalable with strong leadership in place, and is well-positioned to realize its full potential as a standalone business to capture the compelling opportunities in China.” (Source: “Yum! Brands Announces Intention to Separate into Two Publicly Traded Companies,” Yum! Brands, Inc., October 20, 2015.)
The move should allow management to focus exclusively on the Chinese market without interference from its U.S. parent. Through this spin-off, YUM should be better off in taking advantage of China’s growing middle class, while also reducing risk for the company. In 2014, the company suffered from a food scandal when it was discovered that tainted meat was being sold at KFC locations in China. Sales took a hit and still have not fully recovered.
Buybacks and Dividends
Yum! Brands is planning to buy back $6.2 billion of its own stock in 2016, which is always good for investors. This can at least provide a floor on the stock price (if there’s no bad news.)
YUM stock is also attractive for income investors. At today’s price, YUM stock currently has a dividend yield of 2.36%. Yum! has been paying out dividends to shareholders since 2004 and has been raising them every year.
The Bottom Line on YUM Stock
With Yum! opening stores worldwide at a rapid pace, the planned spin-off of its China division (which should provide more stable earnings), and its buybacks and dividend history, YUM stock should be poised for growth in 2016.
