Friday, December 4, 2015

Weekly Purchase 12 - YUM


It's December already, which means I need to save for my property tax and insurance payment for my house in January. My plan is to limit my purchases using fresh capital until the beginning of next year. With the sharebuilder plan, I had to make the purchase decision on Monday so the capital was already allocated in November. Confused yet?

If the market goes south this month, I may need to dip into my war chest/emergency funds to make some trades, and then use next year to refill. Let's see how it goes. 

My purchase this week is on YUM. I talked with my son recently on YUM, and he had no idea what it was about. However, when I mention KFC, Taco Bell and Pizza Hut, his face lit up. So, we have brand recognition with this company!



Details of Purchase


On Tuesday, I bought 15.19 shares of Dover (YUM).


Action
Security
Price
Quantity
Amount
Buy
YUM
$73.85
13.4882
996 + fees


This purchase increases my forward annual dividends by $24.82.

About YUM

You can read more about YUM here:

Criteria Table


YUM 12/2015
Area
Criteria
CheckList
Comment
Quality Company
Dividend Growth
>5 years
Yes
11 Years
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable
FCF over Dividends
Yes
Yes
FCF covers Dividends
M* Moat
Wide Moat
Yes
Wide
M* & S&P
Credit Rating
> BBB+
No Significant Debt
UR-
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
No Significant Debt
Cash to Debt 0.27
Interest Coverage No Debt
Debt to Equity 169.94
M* & S&P Stars
> 3 Stars for both
Yes
M* 4 Stars
S&P CapIQ 3 Stars
Payout Ratio
<60%
No
78%
Dividend Growth
& Yield
Dividend Yield
>3%
No
2.52%
Dividend Growth
>5%
Yes
15.90%
Chowder
>12%
Yes
18.41%
Valuation
Yield/Avg Yield
>1.1
Yes
1.29
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 84.78
Low Point 61
P/E
Below Mid Point
No, but yes for forward PE
Median 28.95 Current 34.94 Forward 20.48
DRRM
~10%
Yes
Assuming 8% growth; projected return=9.97%
M* Estimate
<M* est
Yes
M* 92
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 75

Data from gurufocus, M*, S&P CapIQ, Yahoo Finance

YUM has around 40% if its operating income from the Chiba region. With China slowing down, it is clearly having some effects on the company. 

Earlier in the year, there were talks of a spinoff of the China division (influenced by the yuan as well as a couple of influential investors). 

So a lot of things could happen which could swing prices in different directions. 

Why I am buying?

Based in the information at hand (see criteria table), I have a discretionary consumer company with reasonable dividend growth and yield characteristics. The free cash flow looks good in the near term with no significant debt. So, the quality is reasonable. 

So, when to buy?

Fair Price Calculation


I use the dividend yield theory, PE analysis and DDRM for fair price calculation. Based on these methods, I estimate the fair price to be in the around 82. Therefore, I believe YUM is trading at fair value.

Price and EPS Correlation 

Dividend Yield Theory

Based on the dividend yield theory, YUM seems to be fairly priced. There is more downside to the price which is an opportunity to buy more. Based on the recent EPS, I my guess is that growth is stagnant in the near term. Having said that, there was a recent upgrade of the company.

Based on my approach of small investments over time, I am happy to average down (or up) to slowly build up my position in YUM.

That's it for now, what do you think of YUM?
D4s


8 comments:

  1. Nice buy - solid and consistent dividend increases for YUM

    ReplyDelete
    Replies
    1. Thanks Chimp. There are some Chinese headwinds for YUM. I understand an executive recently left the Chinese head position, so there will be some changes. But for YUM, I can slowly build up a position. I think long term it is okay.
      D4s

      Delete
  2. with this rate you'll break the record on every single month for years to come!!

    YUM is at a great opportunity right now. The economy and the job market is great that people are willing to eat out more often.

    Thanks for sharing your buys!!

    Goodluck on the future buys!

    ReplyDelete
    Replies
    1. Vivianne, thanks for visiting. My plan is to just invest as regularly as I can. Investing paycheck to paycheck. However, I have some big bills ahead so my paycheck will have to go to that. Hopefully, the market stays flat so that I can start again in Jan.
      Having said this, my tax deferred account should continue to be busy since I can just reallocating capital around.
      D4s

      Delete
  3. Great buy D4S...way to keep adding to the portfolio. Look forward to seeing this purchase show up in future dividend reports!

    Keep up the great work. Best wishes! AFFJ

    ReplyDelete
    Replies
    1. Thanks for the encouragements. The dividends should show up early next year and hopefully year over year increases with fresh capital and dov growth.
      That's the plan.
      D4s

      Delete
  4. YUM has been a solid performer in my portfolio for a while. I like their long term prospects even though they are facing some near term headwinds. The planned YUM! China spin off will no doubt create greater value for the company as well. Thanks for sharing.

    ReplyDelete
    Replies
    1. Thanks divhut. I am not sure on the China spinoff whether this is positive or negative. However, I do like the overall total returns over the long term. Short term, we will some pains for sure!
      Thanks for your thoughts and experience on YUM. It's good to be a fellow shareholder.
      D4s

      Delete