The fast food colossus McDonald’s Corporation (NYSE:MCD) has seen excellent global comparable sales in the second quarter, up almost 10% and growth in all segments (the US segment was up 3.7%, the International Operated Markets segment was up 13% and the International Developmental Licensed Markets segment was up increased by 16%). Revenue in the six major markets exceeded $6 billion for the quarter.
Let’s take a closer look at McDonald’s as a company, why you should consider investing in McDonald’s (and why you might not want to invest in the fast food giant).
Learn more: Should You Buy Dividend Stocks During Inflation?
Today, McDonald’s Corporation, headquartered in Chicago, operates and franchises restaurants around the world. It is known for its burgers and cheeseburgers, chicken nuggets, fries, shakes, desserts, sundaes, soft serve cones, soft drinks, coffee, rusk and bagel sandwiches, breakfast burritos, hotcakes and other specialties.
You may be very aware of its ubiquitous name and brand, but what about its history? Let’s take a quick look.
After Dick and Mac McDonald failed in the movie business, they realized they could run drive-in restaurants. In 1948, they sold 15 cent burgers and started franchising their restaurant with burgers, shakes and fries. Ray Kroc became a franchise agent of the McDonald’s brothers, opening the first McDonald’s east of the Mississippi River in 1955. McDonald’s restaurants opened in Canada and Puerto Rico by 1967 and now have more than 36,000 restaurants in more than 100 countries.
Along the way, the restaurant created the Filet-O-Fish sandwich (in 1965), the Big Mac (in 1968), the Quarter Pounder and Quarter Pounder with Cheese (in 1973), the Egg McMuffin (in 1975), Chicken McNuggets (in 1983 ) and McFlurry desserts (in 1995). The Ronald McDonald House was founded in 1974 and the global “i’m lovin’ it” ad campaign was launched in 2003. In 2020, McDonald’s opened its first net zero-designed restaurant at Walt Disney World Resort.
McDonald’s had its initial public offering (IPO) on April 21, 1965. One share cost investors $22.50 and the stock cost $30 per share on the very first trading day. Suppose you had bought 100 shares on the day the IPO took place. By March 1999, you would have owned more than 74,000 shares as a result of 12 stock splits that cumulatively expanded the number of shares by a factor of 729. You would have had nearly $16,000,000 on your hands. In 2022, the company will be worth approximately $185.17 billion.
Why you should consider investing in McDonald’s
Let’s take a look at why you might consider investing in McDonald’s.
- Income: McDonald’s grew its pre-pandemic sales in 2021 after profits fell in 2020. Revenue was $23.2 billion in 2021, from $21.3 billion in 2019. Global comparable store sales were up 9.7% across all segments and the US alone by 3.7%, beating S&P 500- benchmarks.
- Universal appeal, even during inflation: While it may seem like a simplistic reason to invest given all the fundamentals to analyze before investing, the simple truth is that even in times of inflation, people still need to eat. Fortunately, McDonald’s has branded itself as the “cheap” place to get a tasty meal. Ultimately, consumer staples tend to hold up well during recessions.
- Rising prices: Restaurant chains, including McDonald’s, have increased their menu prices as inflation rises as their own prices rise. Fortunately, McDonald’s customers have responded well to rising prices, probably because McDonald’s has been slowly pushing them up.
- Continued Success: The company can’t seem to go wrong. It has developed a large number of responses to increase consumer confidence: consistency, efficient processes, innovation, adapting to consumer needs and catering to what customers want (such as the request for breakfast all day) have always been McDonald’s trademarks .
Why you might prefer not to invest in McDonald’s
Now let’s take a closer look at the reasons why you might prefer not to invest in McDonald’s.
- Tough Competition: There is no doubt that McDonald’s faces competition from other fast food brands, such as Burger King, Wendy’s, Taco Bell, and KFC. Competitors such as Chipotle Mexican Grill and other types of fast-casual dining have also developed their own niche. You may find better bang for your buck elsewhere. Despite these competitors, McDonald’s has pulled most of them out of the water, so compare their performance carefully with McDonald’s before investing.
- Weak dividend yield: A dividend yield of 2.16% reflects a rate more in line with a high-growth company, not a mature company like McDonald’s Corporation. You may want to look for a dividend yield that is more in line with market averages.
- Debt: Long-term debt grew as management took advantage of liquidity and low interest rates. However, due to rising interest rates, McDonald’s Corporation management will have to deal with these challenges.
- Currency Effects and Slower Selling: In China, as a result of COVID-19 lockdowns, bottomline challenges have emerged with declining sales amid strong sales in other countries. Still, these are minor concerns compared to the company’s much more successful overall result.
Learn more: How to build a large dividend stock portfolio?
Consider your portfolio as a whole before investing in McDonald’s
There are many great companies to invest in, and McDonald’s Corporation is one that has stood the test of time. Rising sales and profits that surprised analysts who outperformed competitors are three good qualities McDonalds is delivering right now.
Before investing, analyze McDonald’s Corporation’s entire operating results, balance sheet, fundamentals and more. Buying McDonald’s stock for dividends means you can hold onto the stock for the long term, especially if you may want to live off the dividends on retirement.
If McDonald’s Corporation isn’t your best match, consider investing in other established companies as you can typically rely on them to offer reliable dividend payments, especially the Dividend Kings vs. Aristocrats.
Not sure yet what small portion of a business to buy? Look at 11 high-yielding dividend stocks.