McDonald’s Vs. Yum Brands: Which Is The Better Dividend Growth Stock?

When it comes to dividend stocks, the Dividend Aristocrats are the tried-and-true. These are a group of stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. 

McDonald’s (MCDis a Dividend Aristocrat, with over 40+ consecutive years of dividend increases. McDonald’s is the largest publicly-traded fast food company in the world, with more than 37,000 locations, in 100+ countries.

One of McDonald’s fiercest competitors in the fast food industry, Yum! Brands (YUM), is not a Dividend Aristocrat. But it has a dividend yield of 1.7%, and typically raises its dividend at a higher rate than McDonald’s. Yum has already delivered a 20% dividend increase in 2018.

Both companies recently reported quarterly earnings results. McDonald’s reported quarterly financial results that beat expectations on both revenue and earnings-per-share. The strong earnings report sent McDonald’s stock up ~5% in early trading. Yum stock, on the other hand, fell 5% after its own quarterly report.

This article will compare-and-contrast these two dividend-paying fast food giants.

Earnings Overview

For the 2018 first quarter, McDonald’s had earnings-per-share of $1.79 on revenue of $5.14 billion. Both figures handily exceeded analyst expectations; consensus estimates called for earnings-per-share of $1.67 on revenue of $4.97 billion.

System-wide sales increased 7% in constant currencies, driven by growth of comparable-store sales, which measures sales at locations open at least one year. Comparable sales increased 5.5% in the first quarter, a very strong result that was far ahead of the 3.8% growth expected by analysts.

In the U.S., McDonald’s largest segment, comparable sales were up 2.9% year over year, and also beat analyst expectations of 2.7% growth. Across McDonald’s other geographic segments, comparable sales for the International Lead segment increased 7.8% for the quarter, primarily driven by the U.K. and Germany.

In the High Growth segment, first quarter comparable sales increased 4.7%, led by strong performance in China and Italy. In the Foundational markets, first quarter comparable sales rose 8.7%. Overall, global comparable guest count was up 0.8%. Menu price increases and favorable product mix also contributed to growth.

Earnings-per-share increased 16% in constant currency. The double-digit earnings growth reflects the company’s successful refranchising strategy, as well as other growth initiatives.

Meanwhile, Yum owns the KFC, Pizza Hut, and Taco Bell brands. It competes directly with McDonald’s, in all geographic markets in which it operates.

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