Yum! A global superpower

If you've ever been to KFC, Pizza Hut, Taco Bell, or Long John Silver's, you're familiar with Yum! Brands (YUM). These fast-food chains have gone global too, transforming Yum! into a superpower.

The sheer number of restaurants and franchises under the Yum! brand is stunning -- 39,000 in more than 130 countries.

Of the $13.5 billion in revenue Yum! collected in 2012, 51% came from China compared to just 25% from the U.S. As emerging market countries mature, so too will their burgeoning middle class -- much like the U.S. during the '50s. This wealth effect should dramatically bolster the global consumer base.

Nowhere has Yum!'s growth been more pronounced than in China, where Yum! operates more than 4,250 KFCs and 850 Pizza Huts in 700 Chinese cities. And the opportunity in China is still huge.

Further, the expansion in China taught the company how to adapt products to local markets, aggressively boost location presence and give decision-making power to local managers.

Yum! will leverage that experience to expand in other markets where restaurant penetration rates are lower, but potential profit gains are high. As a result, capital spending has become increasingly directed toward new markets in Africa, Russia, Germany, France, and most especially India.

Overall, Yum!'s activities in India are expected to bring an additional $100 million in annual profit by 2015 as the established store count doubles from 590.

But don't forget about the U.S. even though the growth prospects may be lower. This region provides much needed financial stability, and U.S. profits can finance international expansion.

Additionally, Taco Bell is much more popular in America versus the rest of the world. Taco Bell operations were very strong in the States, where more than 400 million Doritos Locos Tacos were sold during the past year.

The long-term goal is for Taco Bell to go from about 5,000 units to 8,000 units and Pizza Hut to expand from 6,000 units to 8,000 units in the U.S.

Most importantly, Yum! remains committed to investors. The company is known for repurchasing its shares and increasing its dividend. Yum!'s board authorized up to $875 million in repurchases through May 2014.

In the past, management has purchased the shares around $68, which is within 5% of today's market price. This program has returned $7.8 billion to shareholders since 2004.

At the same time, the company pays shareholders a solid dividend that has increased at a double-digit rate during the past eight years. In fact, that dividend recently increased by 17% to $1.34 (1.9%). The company has a target annual payout ratio of 35% of net income. This program has returned $2.8 billion to shareholders since 2004.

Along with the dividend, the shares are undervalued. Analysts expect the stock to earn $3.06 per share this year and $3.75 next year.

The shares currently trade at 23 times EPS and 18 times forward EPS. While that multiple seems high, its peer group trades at 21.5x. Also, investors are likely going to pay a premium for YUM because of its international growth potential.

Given the strong commitment Yum! places on increasing its dividend (notice that the dividend increased even during the recession of 2008) and its ability to take advantage of growth in any world market, we believe this stock deserves a place in any portfolio.