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Overview

As the US stock market is at a five-year high, many investors are looking to rebalance their equity portfolios among a few key sectors. As for the fast food segment, the two companies in this article particularly stand out because of their strong international exposure, particularly to fast growing emerging market economies such as India and China. The emerging market growth potential for both of these companies should put them at an advantage to their peers who operate solely in developed economies such as the US or in Europe. Both companies listed have dividend yields of at least 2% and trade for less than 19x 2014 earnings estimates.

McDonald's (NYSE:MCD)

Market Cap: $93 Billion

Dividend Yield: 3.34%

Estimated 2014 PE: 15.86x

The globally recognized brand of McDonald's is synonymous with low prices and wide availability. At the end of 2011, the company had 33,510 restaurants, including 6,435 that are company-owned. The company has recently experienced success in growing its same-store sales, as this figure for the year through November 30, 2012 increased by 5.7% in constant currency on an annualized basis. In Q3 of 2012, McDonald's earned $1.43 per share on a diluted basis. However, this is a small decrease from the same period in 2011 and is largely due to increased costs from company-operated restaurants. However, it appears that if the company is able to maintain its current gross margins, EPS should be able to increase due to new revenue streams from new stores, combined with the company's share repurchase plan. This should take place, as McDonald's continues its push into emerging markets, particularly in Asia. McDonald's Asia Pacific Middle East Africa (APMEA) segment accounted for slightly below 24% of revenues in Q3 of 2012. This is a number that the company hopes to grow over the long term. Additionally, McDonald's is known for rewarding its shareholders through both dividends and share repurchases. Last September, the company increased its quarterly dividend payment by 10% to $0.77. While the stock is down slightly more than 9% over the past 52 weeks, the company should be able to rebound this year, as it opens new restaurants and grows profitability.

Yum! Brands (NYSE:YUM)

Market Cap: $29 Billion

Dividend Yield: 2.06%

Estimated 2014 PE: 18.17x

Yum! Brands, the parent company for KFC, Pizza Hut and Taco Bell is currently undergoing aggressive international expansion plans, particularly with KFC in China. For every year since 2002, Yum! has increased EPS by double digits (excluding items) and is forecasted to repeat this feat in FY2012. The company operates over 38,000 restaurants. Specifically, in China the company has grown sales at a CAGR of 26% from 2009-2012 to a total of over $8 Billion. China accounted for over 55% of Q3 revenue for Yum! The company also has its sights set on India, where the company has recently announced plans to spend $100 million over 4-5 years in the country to open new restaurants. As for 2013, Yum! plans to keep up its aggressive expansion as the company is aiming to open over 700 restaurants in China as well as 150 in India. Of course, the company trades for a premium earnings valuation largely because of this upside potential. The stock is up slightly more than 4% over the past 52 weeks and is definitely a company to consider given its growth potential in emerging markets.

Source: 2 Dividend-Paying Fast Food Companies With Strong International Exposure