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Dividend Increases Quietly Continue (MCD, YUM)

September 26th, 2012

Jim Trippon: The dividend hits keep coming, as 2012 continues to be a good year, quietly or otherwise, for dividends. Two fast food giants, McDonald’s (NYSE:MCD) and Yum! Brands (NYSE:YUM) announced dividend increases. McDonald’s recently announced an increase of 7 cents in its quarterly dividend payment, from 70 cents to 77 cents per share, a 10 percent increase, while Yum! raised its quarterly payment 18 percent, from 28.5 cents to 33.5 cents.

McDonald’s Five Year Chart

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Source: Yahoo Finance

McDonald’s annualized payment of $3.08 per share gives it a current yield of 3.28 percent at its recent closing price of $93.71 per share. The stock price is down from its 52-week high of $102.22, as the company had experienced some slowing growth in the recent quarter due to the sluggish global economy. Recent comps for August, though, showed growth of 3.7 percent, compared to 3.5 percent growth in August of 2011. So McDonald’s continues to forge ahead with its value emphasis in the face of the stiff economic headwinds in place. The company will pay out $770 million in the upcoming quarter with its dividend payments, and more than $3 billion on an annual basis.

More Fast Food Cash

Yum! Brands will now pay an annual dividend of $1.34 per share. With its recent stock price at $68 per share, close to the middle of its 52-week trading range, this is a current yield of 1.97 percent. Although the yield is less than McDonald’s, and doesn’t look like a whopping amount, Yum! is still a potent grower long term in the global restaurant scene, with nearly 40,000 restaurants in 120 countries. The owner of KFC, Taco Bell, and Pizza Hut has a significant presence and much of its global business now in China. It has raised its dividend eight years in a row and has grown its dividend payments by nearly 20 percent each year in the last five years. The company has a target of paying out 35 percent to 40 percent its net income each year.

Yum! Brands Five Year Chart

Source: Yahoo Finance

Dividends And Stock Performance

The announcement for McDonald’s and Yum! both pushed their stocks up slightly, but didn’t make for huge rallies in either name. Dividend investing is for many a long-term game, though, so most shareholders aren’t too worried about whether there’s a quick jump in the stock price or not. McDonald’s is a stock that is held for a combination of stable growth and its underrated dividend, while Yum! has been historically more of a growth stock recently, though its growth rate is slowing down some, especially in this economy. While investors don’t hold Yum! primarily for its income, the increasing dividend is a nice bonus for investors and the growth of the payouts adds to that each year.

McDonald’s, on the other hand, has had a few problems recently with questions about product quality, currency exchange rates, its European business, as well as the belief by some analysts that higher beef prices due to the drought and lower crop yield in the US will impact it going forward. McDonald’s, though not impervious to such problems, has historically and certainly in the last decade or so, shown a high aptitude to solve problems and adapt, which is in some ways what still sets it apart from its competition. Although the financial media has been focusing on the poor performance of McDonald’s stock this year, as it has lagged Yum! Brands’ performance by more than 20 percent, long term bets against McDonald’s aren’t necessarily wise. The dividend increases by both companies shows that their managements are still confident going forward, even in this lackluster economy.

McDonald’s , Yum! Brands & Dow YTD

Source: MotleyFool.com

Where Do They Fit?

McDonald’s and Yum! should be looked at in the context of whatever portfolio strategy an investor has rather than in isolation. Simply put, it wouldn’t be right to criticize an investor for buying or not buying either of these stocks simply on their dividend or yield profiles without knowing how these stocks fit into the overall portfolio. And as we pointed out, these stocks are each a bit different in their makeup. McDonald’s is more likely the type of investment for the core of a group of long term holdings for an investor, rather than a pure dividend play or a trade, while Yum! showed a lot of rapid growth in recent years, so it was more likely in a growth segment of investors’ portfolios. Dividend paying stocks have versatility that they’re not often given credit for, with an allure beyond just income.

Written By Jim Trippon From Global Profits Alert

Jim Trippon, founder of Trippon Financial Media, Inc., is a maverick that has dedicated his investment career to helping investors make smarter financial and stock selection decisions. Trippon,  an internationally recognized expert on global and value investing, has a deep passion for finding hidden value in global equity markets. Trippon started his career as a financial statement examiner with Price Waterhouse which allows him to dissect a public company’s financial  picture and better identify hidden gems. Trippon’s savvy approach to investing and personal finance makes him in high demand by major media who seek his unique perspective on stocks and global economics. He has  been featured in top publications both in the US and abroad including  Bloomberg, Investor’s Business Daily, The New York Times, The International Herald Tribune, Stock Futures and Options Magazine, The Bull and Bear Financial Report and he regularly appears on broadcast television including as an on air contributor to CNBC, CNN, Fox Business, and Fox News.

This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit www.globalprofitsalert.com.


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