Yum! Brands Inc. (YUM) recently announced that its board has approved the share repurchase of an additional $750 million, as the company has been consistently enhancing shareholders’ returns. The world’s largest restaurant company will buy back shares over the next 18 months.
The owner of KFC, Pizza Hut and Taco Bell chains currently has $130 million of share buyback remaining under the $300 million share repurchases authorized by the board in March 2010. Year to date, ended September 4, 2010, the world’s largest restaurant company in terms of system restaurants, with more than 37,000 restaurants in over 110 countries, repurchased $7.6 million for a total of $283 million.
The Louisville, Kentucky-based company intends to build shareholder value and return cash to shareholders through share repurchases or dividends. Since 2004, the company has returned over $1 billion and $6 billion via dividend and share repurchase programs, respectively.
Yum targets an annual dividend payout ratio of 35% to 40% of net income and has been increasing its dividend every year. In September 2010, Yum hiked its quarterly dividend by 19% to 25 cents per share. This represents the sixth consecutive annual increase since the dividend was initiated in 2004.
Yum! is rich in cash and is armed with cash and cash equivalents of $1.3 billion as of September 4, 2010, further reiterating the fact that the company has strong liquidity and the ability to raise shareholder value.
One of its competitors McDonald’s Corporation (MCD) also consistently enhances shareholder returns. During the fourth quarter, the company has returned $5.1 billion through share repurchases and dividend payment to shareholders.
We appreciate Yum’s effort to step up long-term shareholder 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. We believe that an increase in share buy-back authorization affirms the company’s optimistic outlook and shows that it is heading toward strong future growth.
The company is also about to announce its fourth quarter results on February 2, after the market closes.
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