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A well-known Fortune 500 company just signaled that it is preparing for a huge special dividend.
You may not be familiar with name Yum! Brands (NYSE: YUM). But I’m sure you know their business pretty well. Yum owns 43,000 restaurants around the world, including KFC, Pizza Hut, and Taco Bell.
The headline on the press release: “Yum! Brands Announces Authorization of up to $4.2 Billion in Share Repurchases and Declares Quarterly Dividend of $0.46 Per Share.” If the company executes this new buyback, it could reduce the number of shares by 10%.
Yum Dividend History
Yum has a long history of rewarding shareholders. In the last seven months, Yum has bought back $2 billion of stock at an average price of $72 per share. With the stock now trading around $82, that appears to have been a smart move.
Looking beyond the headline, there was some interesting information. Specifically, the company is exploring a possible special dividend: “The capital will be returned in the form of share repurchases, a special dividend or a combination thereof.”
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Yum has never paid a special dividend. But the company has a long history of growing its dividend payments.
In the last 10 years, the company has increased the Yum dividend by 206%. And the current Yum dividend yield is at 1.8%.
As expected, Yum stock has thrived during this period of increasing dividends. Over the last decade, the stock is up 229% versus a 65% gain for the S&P 500.
Late last year, Yum welcomed an activist investor named Keith Meister to the board of directors. The former Carl Icahn associate is now the company’s largest shareholder.
Meister was an early advocate for the separation of the company’s China restaurants into a separate public company. Unlike most activist proposals, the company’s directors quickly accepted Meister’s plan.
Stock Catalysts Ahead
There are a number of potential catalysts and factors in play before the end of 2016.
First, the company will be buying back 10% of its stock on the open market. Second, the company will spin off the Chinese restaurants into a new company called Yum! China. And third, there is a real possibility for a big special dividend payment.
These three shareholder-friendly catalysts make Yum an attractive stock to consider for your portfolio. It’s too early to know exactly what will happen with the special dividend, or how to trade this situation.
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