Growth & Income Stock: Yum! Brands Inc

Yum! Brands Inc (YUM: 45.52 0.00 0.00%) recently hit an all-time high at $46.25. It also announced on September 14 that it is raising its dividend 19% to $1.00 per share.

Yum! Brands has more than 37,000 fast-food restaurants in 110 countries. Its brands include KFC, Taco Bell, Pizza Hut, Long John Silver's, and A&W. It has a market cap of $21.4 billion.

Overseas Sales Drive Growth

Yum reported second quarter earnings per share of $0.58, beating the Zacks Consensus Estimate by 4 cents. Earnings grew 17% year-over-year.

Overall sales increased just 4% from the second quarter of 2009. U.S. sales declined 10% over the same period due to a decline in store count, but same-store-sales were essentially flat. Pizza Hut saw the best growth at 8%, which helped offset a 7% decrease at KFC.

The main driver of growth came from China as revenues there increased 22%. China accounted for 34% of total sales in the second quarter, and that number is only expected to climb as Yum rapidly expands its KFC and Pizza Hut brands in the country. The company has opened 155 stores in China year-to-date.

Overall sales for the Yum Restaurants International division – which excludes operations in China – experienced 6% growth.

The company kept its expenses in check as the operating margin improved from 15.9% to 16.4% in the quarter.

Going Forward

Management expects 2010 EPS between $2.39 and $2.43. The Zacks Consensus Estimate is above guidance at $2.49, representing 14.5% annual growth. Yum has had an incredible streak of EPS surprises, beating the Zacks Consensus Estimate in each of the last 20 quarters.

Rewarding Shareholders

Yum announced recently that it is raising its annual dividend 19% to $1.00 per share. Yum began paying a dividend in 2004 and has raised it at an average annual clip of 33%. The current dividend payout ratio is 35%, within its target of 35-40%.

Management has also spent $247 million year-to-date repurchasing shares.

Fundamentals

Yum trades at 18.3x 2010 estimates, which is justified by its higher growth rates. Yum does carry quiet a bit of debt, with a debt-to-equity ratio of 2.1. This debt has not become too burdensome however as Yum continues to produce strong cash flow.

The stock has a dividend yield of 1.8%. It was recently upgraded to a Zacks #2 Rank (buy).