You don’t hear much about McDonald’s (MCD) stock these days. It’s not as exciting as younger, faster-growing, fast-food stocks like Shake Shack (SHAK). But McDonald’s stock continues to consistently perform well while remaining a reliable dividend grower. In fact, MCD shares are just shy of all-time highs…
McDonald’s Stock: Slow but Steady Growth
How consistent has McDonald’s stock been? It’s up 8.6% year to date (vs. a 16.2% return in the S&P), up 7.8% in the last year (3% for the S&P), 78% in the last five years, 202% in the last decade, and so on. Now, that’s not setting the world on fire, but McDonald’s is beating the S&P 500 over those longer time periods. However, when you sprinkle in the 2.1% dividend yield – better than the 1.6% average dividend yield for the S&P 500 – the combination of reliable income and consistent returns makes MCD stock more appetizing.
And now is a good time to buy. Why? Because the company is on track for 7.5% sales growth this year, and yet the stock trades at a palatable 26.7 times forward earnings – well below industry peers CMG (forward P/E of 43.5) and SHAK (an astronomical 1,250 times forward earnings).
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Meanwhile, MCD stock remains a Dividend Aristocrat; the company raised its dividend yet again at the end of last year, up to $1.52 per share from the previous $1.38 quarterly payout. It’s the 45th straight year the company has raised its dividend payout.
And the company is coming off a strong first half of the year, with Q1 earnings per share improving by a whopping 63% on 4% revenue growth and Q2 beating on both the top and bottom lines. That prompted a big run-up in the share price from mid-March through the end of April, and it’s mostly held its gains since.
Having pulled back slightly from its 298 peak in early May and the end of June, this looks like a good entry point if you’re a short-term investor. MCD has consistently held up well in market downtrends, even shaking off recent market weakness and holding near all-time highs. But McDonald’s stock is a long-term holding, so the entry point doesn’t matter much. It’s the kind of stock you buy, enroll in the DRIP (dividend reinvestment program), and let it marinate in your portfolio for the next 10 years. If you had invested $10,000 in McDonald’s stock 10 years ago and reinvested the dividends, you’d have $39,703 today!
MCD Still a Long-Term Play
McDonald’s doesn’t change much. Yeah, they do some window dressing here and there – last quarter they added more Big Mac sauce and started using softer hamburger buns. But 10 years from now, you’ll still be able to do what you did in 2013, 2003, 1993 and 1983: pull up to a McDonald’s drive-through, order a Big Mac, Quarter Pounder or six-piece Chicken McNuggets with fries and a co*ke, and drive away happy (if not exactly healthy).
While it’s long past peak perception, the profit and sales growth and rock-solid dividend continue to make MCD stock a good long-term investment for growth investors and income investors alike.
And as CEO Chris Kempczinski said in the company’s recent earnings call, “We perform well in good times and in bad.” MCD is one of the market’s signature all-weather stocks – and yet it keeps beating the market over almost any measurable period.
There are fast-food stocks that have been growing much faster (no pun intended), but none of them offer McDonald’s combination of steady returns and yield. If you don’t already own this reliable growth and income stock, now is as good a time as any to add MCD to your portfolio.
Do you have McDonald’s stock in your portfolio?
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*This post has been updated from an original version, published in 2018.
Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week.
