5. Yum China Holdings, Inc. (NYSE:YUMC)
Number of Hedge Fund Holders: 28
Yum China Holdings, Inc. (NYSE:YUMC) is a Shanghai-based fast-food restaurant holding company that operates and manages several well-known brands. the stock has dropped more than 21% year-to-date, largely due to challenges in China, such as shifting consumer behaviors and increased competition. These factors have affected the company’s performance and investor sentiment even throughout the past year. However, on August 6, YUMC surged by nearly 12%, after reporting better-than-expected earnings in the second quarter of 2024. The company posted revenue of $2.68 billion, which showed a 1% growth from the same period last year. The quarter also remained positive for the company’s expansion efforts. By June 30, 2024, the total number of stores had reached 15,423, with 10,931 KFC locations and 3,504 Pizza Hut outlets. During the quarter, the company added a net total of 401 new stores, of which 99, or 25%, were opened by franchisees.
Baron Funds also highlighted the reasons for Yum China Holdings, Inc. (NYSE:YUMC)’s decline in its Q4 2023 investor letter. Here is what the firm has to say:
“Yum China Holdings, Inc. (NYSE:YUMC) is the master franchisee for the YUM brands in China and operator of the KFC and Pizza Hut restaurant networks in that market. Shares detracted after the company reported a negative surprise on margins for the third quarter and hinted that increased competition and cost-consciousness among Chinese consumers could cause that margin compression to continue through the first quarter of 2024. Although in-year margins are volatile at Yum China, its pristine balance sheet, cumulative investments in technology, unmatched scale, and successful pivot to higher-ROI, smaller footprint stores in recent years should drive continued 8% to 10% store growth at attractive returns. Further, given its strong free-cash-flow generation and strong balance sheet, we believe the company is likely to offer capital returns to shareholders in excess of earnings over the next several years. We remain shareholders.”
Yum China Holdings, Inc. (NYSE:YUMC) is a strong dividend payer with a solid amount of cash available on its balance sheet. Its trailing twelve-month operating cash flow comes in at $1.4 billion and levered free cash flow amounts to over $888 million. As of the end of June 2024, it has over $1 billion available in cash and cash equivalents. Its strong cash position could be seen from its $249 million return to shareholders through dividends and share repurchases. Yum China Holdings, Inc. (NYSE:YUMC) started paying dividends in 2017 and has paid regular dividends to shareholders since then, which makes it one of the best dividend stocks in the restaurant sector. The company pays a quarterly dividend of $0.16 per share for a dividend yield of 1.92%, as of August 6.
The number of hedge funds tracked by Insider Monkey owning stakes in Yum China Holdings, Inc. (NYSE:YUMC) jumped to 28 in Q1 2024, from 22 in the previous quarter. These stakes are valued at roughly $818 million in total. With over 12.2 million shares, GuardCap Asset Management was the company’s leading stakeholder in Q1.
