Take a Look at This Yummy Appetizing Stock
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
All that brings a smile to an investor is return on his hard earned money. There are very few stocks that delight these stakeholders by providing them value in terms of dividends. One such stock in the quick service restaurant arena is McDonald’s (NYSE: MCD). Its business is pretty simple: sell good food, delight taste buds, get paid for it and then pay investors after having reinvested a portion for expansion. This American fast food chain has served masses all over the world through company restaurants and franchises. The company has been there for decades and experienced continuous growth. Even now its expansion story continuous to grow stronger as the company’s tour to explore foreign markets seems unending. All this is justified as it posted strong numbers in terms of same store sales for August.
Yummier than many others
Strengthening Same Store Sales:
The same store sales rose 3.7 percent against the previous year figures. The breakfast and value menu boosted the domestic sales figure which grew 3 percent in August. Even Europe was a good market where UK, France and Russia pulled up the same store sales by 3.1 percent. McDonald's Olympic sponsorship drove its revenue as well. In addition, the Asia Pacific/Middle East and Africa region showed great hunger for the Big Mac seller with a same store sales growth of 5.7 percent. Here the sales were primarily driven by China and Australia, while Japan remained a little dull. The company’s Chinese growth has been phenomenal where it aims to shake dearest foe Yum! Brands’ (NYSE: YUM) dominance. Yum’s KFC and Pizza Hut is a big hit in the mainland which has managed to gel well with the Chinese flavor. This emerging nation has a lot to offer to the fast food sector and McDonald’s, which trails behind Yum in China, is focusing to increase its footprints here by opening about 250 outlets and hiring a whopping 70,000 people.
Managing such figures even in such uncertain economic environment speaks loads about the company’s strong foundation. The company’s business model is sturdy enough to stand the adverse atmosphere.
Profitability:
The profitability of the company continues to improve even though macroeconomic factors are dull. Last year the company reported a top-line of $26 billion with a 20 percent profit margin. This is nothing new for the company, as it has been delighting investors in the same manner year after year. The company is known for reinvesting its earnings for expansion and then distributing the rest for dividends.
Distributing earnings as dividends pleases investors, while reinvesting for growth opens up more avenues to boost the top-line and please them further.
The persistent growth:
The fast food chain announced that it plans to invest $1.5 billion to open approximately 1,300 new outlets all over the world in 2012. Out of the total, about 250 would be opened up in China. However, fellow players Yum and Burger King (NYSE: BKW) are also vying the growing economy. Recognizing the growth potential of these emerging markets, Burger King is innovating on its preparation methods to offer what pleases their palette. This move came at the time when Wendy’s overtook to become the country’s second largest burger chain by sales in the last year. Burger King had been struggling in the recent years in the domestic market where it faces stiff competition from McDonald’s and Wendy’s. Its franchises are independent operators and so the company cannot influence them in their restaurant operations. The food chain’s performance at home hasn’t been impressive and so it plans to expand in the Chinese market.
Other than this, McDonald’s also wishes to experiment in the Siberian market as it experienced encouraging sales figures from its Eastern Russia restaurants. However, there are some concerns that could trouble the growth.
Troubled economy troubling the fast food giant
Despite tough global economic situation and rising uncertainty, McDonald’s managed to remain almost untouched. However the risk cannot be disregarded. One must note that the European sales during the Olympics wasn’t all that great compared to the effort that was put in advertising campaign. Probably in the absence of such campaign, the company would have experienced a severe fall in sales. Also, about 40 percent of the company’s revenue comes from this troubled zone which does not seem to be coming out of the financial mess any soon. Despite strong domestic and global performance, European sales could adversely affect McDonald’s given the company’s huge exposure in this market.
Concerns might remain with regards to the European market, but Mcdonald’s is one of the most attractive stocks in the food industry space.
Food for thought – trust and security
McDonald’s is one of the best fast food companies that provide satisfaction to taste buds and security to investors. Its competitive position stands strong with a stable business model that offers growth potential to the company. Its decision to increase its penetration in the emerging Asian markets will help it to manage the setbacks in the debt ridden European economy. With rich dividend history and good profitability margins, the food stock is worth taking a look for long term investors. McDonald’s: Why won’t you love it
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