Yum! Brands, Inc. (YUM), McDonald’s Corporation (MCD): Is the Chicken Issue Turning Into a Disaster?

Steady as She Goes

McDonald’s Corporation (NYSE:MCD)’s might be a better option. Although the company has only one concept, the fast-food burger joint owns one of the most powerful brands in the world. Bloomberg quotes Euromonitor International as reporting McDonald’s Corporation (NYSE:MCD)’s had a nearly 16% market share in China, versus Yum’s nearly 40% share.

That means McDonald’s Corporation (NYSE:MCD)’s isn’t as reliant on China and that it likely has more room to grow than Yum! In fact, Yum! is more likely to lose share over time than increase its lead. By the end of 2013, McDonald’s Corporation (NYSE:MCD)’s is looking to have around 2,000 stores open in the country, less than half of Yum! Brands, Inc. (NYSE:YUM)’s total.

McDonald’s has seen a couple of quarters of top line declines and the big issue has been increasing competition in mature markets. In mature markets, McDonald’s Corporation (NYSE:MCD)’s is the target in the same way that Yum! Brands, Inc. (NYSE:YUM) is the target in China. However, with around $2 billion in cash and debt at less than half the capital structure, McDonald’s Corporation (NYSE:MCD)’s can hold its own in developed and developing markets. And it hasn’t been tarnished by food quality issues.

While earnings may hit a soft patch, long-term investors should take a look at this industry giant with an around 3% dividend yield. A long history of annual dividend increases only adds to the allure.

Just the Opening it Needed

For more aggressive investors, Burger King Worldwide Inc (NYSE:BKW) might be a good option. After yet another restructuring effort, the company just came public again late last year. Debt makes up about 70% of the capital structure, so it has less financial wiggle room, but the company is refocused on growth. That includes aggressive expansion in China, where it is a bit player today.

The problems at KFC could be just the opening that a foreign concept like Burger King needs to get a better footing in the nation. Although the first quarter wasn’t as good as Burger King’s management hoped, they were confident enough about the future to increase the annual dividend by 20% and initiate a share buyback. Trading in the high teens or so, this perennial also-ran could be a turnaround play for more aggressive investors.

No Easy Answer

Yum! has no easy or immediate answer to its China problems. More conservative investors should shift to McDonald’s, which has hit a soft patch that seems easier to resolve. Aggressive types might look at Burger King Worldwide Inc (NYSE:BKW)’s turnaround. Although Burger King Worldwide Inc (NYSE:BKW) faces an uphill battle, Yum’s stumble might be just the opportunity it needs to gain scale in a key market.

The article Is the Chicken Issue Turning Into a Disaster? originally appeared on Fool.com is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald’s. The Motley Fool owns shares of McDonald’s. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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