Dividend Check-Up: Yum! Brands

Yum! Brands has only paid a dividend since 2004, but it's increased its payout each year -- and at a very high rate, to boot. It's a very encouraging, albeit brief, track record.Nevertheless, past returns don't guarantee future results, so dividend history is only 10% of the final grade. Yum! does, however, score a 5 of 5 in this category. Even though Yum! has increased its dividend quickly, it has wisely not paid out more than it could afford.

At first glance, the company appears to have a strong balance sheet, but its credit ratings --- i.e., BBB+ at Morningstar, BBB- at Standard & Poor's -- while undeniably investment-grade aren't immaculate, either. Morningstar, for example, said that the company's off-balance sheet operating leases (a common thing for retailers and restaurants) added to the company's overall obligations and reduced the operating profit coverage of those obligations. Even if we downgraded Yum! Brands' balance sheet score to a "3" to account for operating leases, it would still score an "A-." Bottom line: the dividend looks quite healthy.

Source: Motley Fool

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