The Big Three fast-food chains have all been betting on big gains in China as part of their emerging market growth strategy.
So the coronavirus is proving a challenge in China and elsewhere. As the virus spreads, more customers are staying home.
In response, all three have ramped up “contactless” pickup and delivery as a counter measure. Customers can order online, employees seal the meals in bags and put them in a special spot for pickup. In affected areas in China, meals are dropped off at building entrances with drivers carrying ID cards showing that they – and the people who made the food have been scanned for a fever.
All three have sold off along with the broader market, with McDonald’s faring best and Restaurant Brands International worst. On the plus side, interest cuts are making their dividends more attractive. While investors may avoid new buying for now, all three offer the potential for long term gains. All figures are in U.S. dollars.
Here are some quick updates. All figures are in U.S. dollars unless otherwise noted.
McDonald’s (NYSE: MCD) is the world’s largest fast food company with 37,000 restaurants in 120 countries. More than 44% of its outlets are in Asia, or other emerging markets.
Performance: It is the only one of the Big Three to show a 52-week gain. As of the time of writing, the shares were up 5.32% on a trailing 12-month basis, though down 3.49% year-to-date. They closed at $177.13 on Friday, still up from the original recommended price.
Developments: The company has set up a global epidemic control task force, is working closely with Chinese authorities and supplying meals to Chinese hospitals workers. Several hundred restaurants in Hubei province were closed as of mid-February with 3,000 more in China still open.
Dividends: McDonald’s increased its dividend by 8% in December to $1.25 quarterly. It yields 2.50% at current prices. It is worth noting that McDonald’s has raised its dividend in each of the last 43 years, which means it has thrived despite the Crash of ’87, the dotcom bust in 2000 and the financial crisis of 2008.
YUM Brands! Inc. (NYSE: YUM) is the holding company that owns Taco Bell, Kentucky Fried Chicken and Pizza Hut. In 2016, the Chinese operations were spun off to Yum China (NYSE: YUMC) which pays a 3% royalty on revenues to the parent.
Performance: Yum!Brands is down15% over the last 52 weeks, with much of the loss coming since February. The shares are down 22.1% year-to-date, closing Friday at $78.46, near their 52-week low.
Developments: Yum Brands reported a weak fourth quarter and the coronavirus has been an add on. While Pizza Hut sales in the U.S. were down, while KFC and Taco Bell showed gains. Meanwhile, Yum China temporarily closed more than 30% of its restaurants and expects a first quarter loss.
Dividends: Yum’s quarterly dividend rose 12% with the February payment. The new annual rate of $1.68 yields 2.17%.
Restaurant Brands International: (TSX:QSR; NYSE: QSR) is the third-largest global fast-food operator, owning Burger King, Tim Hortons and Popeye’s Louisiana Kitchen.
Performance: RBI’s stock was the best performer in 2019 and is the worst this year. The shares are 40% off their 52-week high, closing at $63.08 in Toronto on Friday.
Developments: RBI’s latest earnings were also mixed. Fourth quarter sales fell at Tim Hortons, even though they rose at Burger King and Popeyes.
Dividends: RBI quarterly dividend increase 4% to with the mid-March payment. The $2.08 annual rate yields 3.84%.
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(This is an edited version of an article that appeared in the Mar. 16, 2020 edition of the Internet Wealth Builder.)