A year after Yum! Brands, Inc.’s (NYSE:YUM) Taco Bell stores introduced its breakfast service, the restaurant is rolling out its newest breakfast item: The biscuit taco.
This latest menu item is Taco Bell’s latest attempt to capture the breakfast market at the expense of McDonald’s Corporation (NYSE:MCD), which is reportedly is going to start testing out all-day breakfast.
While Taco Bell has a long way to match McDonald’s in its share of the breakfast market, the biscuit taco rollout coupled with Yum’s recent dividend increase, makes YUM stock one to buy.
Taco Bell Retires the Waffle
A year ago, Taco Bell started its breakfast service which featured the waffle taco. However, early signs pointed at the waffle taco being more novelty and less staple. Not long after the waffle taco’s introduction, Taco Bell Chief Marketing Officer Chris Brandt said, “some things on our menu might run out of gas.” According to the restaurant, the A.M. Crunchwrap – which wraps eggs, hash browns, along with bacon, sausage or steak in a tortilla – is the star of the breakfast menu.
This month, the biscuit taco — which can be filled with eggs, sausage, cheese or fried chicken and jalapeno honey sauce — replaced the waffle taco.
Following up on past ad campaigns of people named Ronald McDonald eating and enjoying Taco Bell’s breakfast, YUM created a new ad campaign introducing taking aim at MCD’s breakfast. The latest Taco Bell ads suggest that the Egg McMuffin are boring and uninspired. In New York and Los Angeles, YUM has put up Communist-style posters of a scary clown from the “Routine Republic” holding up an egg sandwich with the slogan “Routine Rules.”
MCD is fighting back, naturally. The burger chain pointed out that it uses fresh eggs to make Egg McMuffins. To counter McDonald’s shared a photo on social media of Ronald McDonald petting a frail Chihuahua — a former long time Taco Bell mascot.
Bottom Line
MCD still remains the breakfast champ, as the early meal accounts for 20% to 25% of its sales, compared to Taco Bell’s breakfast, which accounts for only 6% of its sales.
But that’s not to say Taco Bell’s breakfast has been disappointing.
In the latest quarter, YUM reported that Taco Bell posted the best quarter of year, including same-store growth of 7% in the U.S., driven by the breakfast menu and operating profit growth of 20%. Looking to build on a good thing, Yum! Brands also reported that it opened 236 new Taco Bell stores in the past year; 90% of the new stores were opened by franchisees, demonstrating the strength of the Taco Bell brand.
Furthermore, YUM also continued its 41-cent-per-share quarterly dividend, which translates into a 2.1% yield on current prices. The dividend, while modest, is attractive given that YUM has raised its dividend every year for the past decade.
Returning cash has been consistent theme for YUM as it has returned significant cash back to shareholders — to the tune of $6 billion in cash returned to shareholder through either share repurchases or dividends over the past five years.
Add that shareholder-friendliness to Yum! Brands’ recent breakfast momentum, and you have the makings of something good for YUM stock.
As of this writing, Johnny Chen did not hold any position in any of the aforementioned securities.
