All that Glitters is Still Gold(en)

Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The food industry is a great indicator of producer innovation and consumer behavior. With nearly limitless choices already, there always seems to be a new player or a game changer. It's fascinating and great for the market, but as my girlfriend and I were traveling late at night down a major highway, there was only one restaurant with locations on both sides of the interstate, with packed parking lots.

Investors panicked when McDonald's Corp's (NYSE: MCD) 3rd quarter earnings were reported. EPS, revenue, and the four-quarter losing streak ignited a massive sell-off. A stronger dollar and a weak (but slowly growing) global economy sparked the decreased confidence, but did investors forget about the 3.23% dividend? The $0.77 per share that is due to be distributed?

I read the market news daily, and sometimes multiple times throughout my day. I am not a day-trader, nor do I work in finance. I am simply interested in being aware of the situation and some key facts. Even if the U.S. falls off the "cliff," McDonald's will be intact under the rubble.

We've seen McDonald's spike almost 400% in the last ten years, yet the media still possesses a stranglehold on investor actions. CEO Donald Thompson was unrattled by the news because he knows his company is aiming to do more of the same. Other fast-food restaurants are constantly in the news, with Chipotle's (NYSE: CMG) fall from grace and the "Locos" numbers from Yum! Brand's (NYSE: YUM) Taco Bell. While the success of these companies is established and well-recognized, time will tell the whole story; for now, let's look at the present facts.

  P/E Dividend Yield % Operating Margin % Free Cash Flow (in millions)
McDonald's Corp.  15.8 3.3  30.1   4,420
Chipotle Mexican  30.6  13.4      260 
Yum! Brands  21.2  1.7  14.4   1,230

 S&P 500 index data: S&P 500 Copyright © 2012

At a quick glance, we can see that McDonald's is comparatively inexpensive based on valuation and in terms of its dividend yield. The fact that its dividend continues to increase is crucial in a time of nearly non-existent interest rates as investors eye not only dividend stocks, but companies that have the financial backing and historical success to continue these payouts.

Chipotle and Yum! Brands have the potential to keep pace as their successes have shown, but their costs and cash figures make them vulnerable to economic volatility. With McDonald's operating at a margin more than double either competitor and sitting on a consistently huge sum of cash, it stands alone on top with high spending freedom and resiliency. However, these numbers shouldn't raise a red flag for those interested in Chipotle and Yum! Brands. Companies need to expand and innovate in order to compete with the blue-chips. This is going to take time, over which their heavy investments may pay off in the long-run, particularly by an increase in share prices.

McDonald's may choose to pursue more changes throughout its restaurants because it has the foundation to invest toward growth that will continue for decades. It is the safe bet due to its financial stability as reflected by its historical figures, but it is even more of a bullish bet based on its continued dominance over the entire industry. Let the lines at their drive-thrus prove it.

The news will continue to report on changes within the company, including the announcement of their new U.S. head of operations as I type these very words. At the same time though, the shares are still floating near their 52-week low. With their proven long-term strategy and focus on sustainability, the golden arches will shine for years to come while the others try to do the same.


KyleVaughan has no positions in the stocks mentioned above. The Motley Fool owns shares of Chipotle Mexican Grill and McDonald's. Motley Fool newsletter services recommend Chipotle Mexican Grill and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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