Let’s put it this way, while the US stock market is on a super bullish ride, McDonald’s has struggled with a flat return for the past two years. In fact, it’s a blessing the stock pays dividends because otherwise it would have been better to put your money in a money market fund if you only look at the stock appreciation since September 2012!
What is Happening with Mickey D?
The optimist will tell you that:
MCD is the leader in the fast food industry,
It dominates with its incredible locations and their Real Estate is key in their business model,
It dominates the breakfast and drive-through business (where a big chunk of its profits originate),
A dividend yield over 3.4% is more than enough to be paid to wait.
The pessimist will tell you that:
Labor costs may increase as more protests arise
Margins are under pressure due to fierce competition
Health and Burgers don’t fit well together and the health wings are spreading right now
I’m sticking to MCD right now, what about you?
I’ve been watching McDonalds for a long time. I finally bought some in August and in September I trimmed a few energy positions and invested more in MCD (in retrospect I should have sold more energy). MCD was largely unaffected by the stock market crash in 2008/2009. It is still opening new stores and is backed by hard assets, real estate. MCD pays a higher dividend than gold. Finally, with the Canadian dollar dropping compared to the USD, it is a great play for Canadian investors.
That’s a good question! I posted a little something about $MCD on my blog http://stks.co/j1B7Z. I’ve never seen so many haters pop up all of sudden complaining about the food. They seemed to have showed up out of nowhere soon after the anti-obesity campaign from the Whitehouse. Maybe it’s a coincidence. Maybe it’s social media gone wrong, but viewing the @McDonalds Twitter feed makes me feel like I should run down to the ER and have my stomach pumped. They need to hire someone to do some damage control for their reputation, because everyone is taking shots at them.
On a positive note, like you mentioned, they still pay a nice dividend. In fact, they increased it by 5% even after a crappy couple of years. Sales will be rough, I’m not expecting a beat next week, but a lot of other companies are experiencing declines as well. It’s a tough economy, despite what Washington is saying. I also don’t think $MCD is just going to sit around and do nothing to restore their reputation. They will make things right, the anti-obesity campaign will lose steam and the haters will disappear. By then, the economy will be showing “real” signs of recovery and no one will care will color slime $MCD uses in its food.
no interest.
Flat for two years, huge investment required in many restaurants. Repositioning through McCafe is not a success.
3.4% is certainly sustainable but P/E is high for a dividend paying only company.
My recommendation: Get out.
I’m not sure that things will get back to normal as easily as Arizona Trader said. I think that the currenty antiobesity campaign is the new anti-tobbaco campaign. I think we can expect that MCD will suffer a similar fate that Big Tobbaco company faced. Increased restriction on publicity, increased taxes, and consumer will be more concerned about heir health and will eat less fast food. The fast food industry, and other industries massively using minimal wage workers, will also be hit by increased labour cost, due to changes in labour laws, increased unionization and public pressure. These factos combined will hit the earnings AND the margin of profit. Expect MCD, Burger King and other fast food, even “healthy ones”, to take a hit.
On the other hand, MCD has a strong brand name, so long term, it will be able to capitalize on that, especially for its international locations, and capitalize its strong partnerships with Olympic games, other sports, Coke, Disney, etc.
My take is to wait a few years.