McDonald’s Dividend Stock Analysis
This article shows the analysis format in the Sure Dividend newsletter. McDonald’s has long been a top stock based on The 8 Rules of Dividend Investing, but fell out of the top 10 (to 20, as of the March Newsletter which comes out 3/1/15) after a 12% price run up in February.
Overview & Current Events
McDonald’s (MCD) has 35,000+ locations and is the largest publicly traded restaurant in the world with a market cap nearly 3 times as large as its closest competitor (Yum! Brands). The company now generates more revenue in Europe than in the US.
McDonald’s latest sales release (2/9/15) and current events give shareholders some reason for optimism. The company reported positive comparable store sales in both the U.S. and Europe in January. Additionally, the company’s new CEO Steve Easterbrook starts in March. There are rumors that he met with several activist hedge funds which spurred the 3% gain in the stock’s price February 25th on no news. In any case, sentiment is reversing for McDonald’s. The company’s stock price was up about 12% in February, while the S&P 500 (SPX) gained about 5%.
Next Dividend Record Date: March 2nd, 2015
Next Earnings Release: Late April, 2015
Competitive Advantage & Recession Performance
McDonald’s derives its competitive advantage from its strong brand and franchising business model. McDonald’s franchising model allows it to grow quickly and realize higher returns on assets than a store-owned business model. The company’s golden arches and McDonald’s brand are recognizable throughout the world. The company’s brand is associated with affordable hamburgers and fast service.
The Great Recession of 2007 to 2009 did not impact McDonald’s. The company grew revenue per share, earnings per share, and dividends per share each year throughout the recession. The company’s low priced food items do well in recessions as consumers switch from more expensive restaurants.
Growth Prospects, Valuation, & Catalyst
McDonald’s long-term growth will come from new store openings, share repurchases, and comparable store sales increases. The company has expanded its store count by about 3% a year over the last several years, with growth coming disproportionately in developing countries. McDonald’s has reduced its net share count by about 2.7% a year over the last decade and has a dividend yield of 3.4%. McDonald’s has the potential to grow comparable store sales by simplifying its menu and increasing order speed. Additionally, the company is refocusing its advertising, which should also help growth.
McDonald’s is trading at a P/E ratio of around 19.5. The company could see strong EPS growth over the next several years if the new CEO can successfully turn around slouching comparable store sales.
Maximum Drawdown (starting in year 2000): -70% in March of 2003
DRIP Available: Yes
Dividend Yield: 3.44%
10 Year Dividend Growth Rate: 19.40% per year
Most Recent Dividend Increase: 4.94%
Dividend History: 39 consecutive years of dividend increases
Disclosure: None.