Yum! Dividend Hike Poses A New Challenge To McDonald's (YUM, MCD, EAT)

Yum! Brands Inc. (NYSE: YUM) has raised its dividend yet again.  Today’s news of a 14% increase in the payout rate for the quarterly dividend comes to $0.285.  Based upon a $52.60 price, the new dividend is higher than the ten-year Treasury and comes to about 2.15% for income investors.

It was just back in June that we noted Yum! as being one of several restaurant chains which could actually challenge the 2.8% or so dividend yield of McDonald’s Corporation (NYSE: MCD).  McDonald’s has paid its $0.61 quarterly dividend four quarters in a row.  If it is going to boost its payout, as we expect, then it will likely be announcing it in the coming weeks.  The Thomson Reuters earnings estimates are $5.20 EPS for 2011 and $5.73 EPS for 2012, so there is ample room to boost the payout ahead.

This increase from Yum! raises the annual dividend rate to $1.14 a share and this is the seventh consecutive dividend hike that was by more than 10% even though the companies primary goal today is to reinvest earnings into growth markets like China and elsewhere in the emerging markets.

The company even specified that its dividend policy continues to target a dividend payout ratio of 35% to 40% of its net income.

What is interesting is that dividend hikes beget more dividend hikes.  Brinker International Inc. (NYSE: EAT) just recently paid out its first $0.16 quarterly dividend after having been at $0.14 per quarter for a year.  Now that this stock has pulled back more than 20% from highs, it offers a 3.2% dividend yield.

The beat goes on, and despite a weaker economy under our feet we are still able to see companies which can raise their dividends.  Yum! is the latest dividend hike, but Yum! won’t be the last dividend hike.

JON C. OGG