After McDonald’s, It’s Yum!

After McDonald’s Corporation (MCD) announced an increase in its quarterly dividend by 10% to 55 cents a share last week, another fast food company, Yum! Brands Inc. (YUM) followed the suit.

Yum!, the operator of Taco Bell, Pizza Hut and KFC fast food chains, recently raised its quarterly dividend by 11% to 21 cents a share. This marks the fifth annual increase since the inception of dividend program in 2004. Since then, the company has returned over $1 billion to shareholders.

The increased dividend is payable on Nov. 6, 2009 to shareholders of record as on Oct. 16, 2009.

Yum!’s Board of Directors also authorized the company to repurchase shares worth $300 million. Over a decade, the company has returned more than $6 billion to shareholders via share buybacks.

We believe that despite economic headwinds, Yum! is actively managing its capital, returning much of its free cash to shareholders. Further, the stock provides relative safety and moderate growth in a turbulent environment and exposure to faster-growing international markets. As such, we maintain an Outperform recommendation on the stock.

Yum! and other fast-food chains such as Burger King Holdings (BKC) and Chipotle Mexican Grill (CMG) are faring better than casual and upscale dining restaurants, as budget-constrained consumers are trending towards lower-priced dining options.

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