Are the Golden Arches Worth Their Weight in Gold?
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The date is January 13th, 1978. A burger joint has just hit Wall Street trading at $1.23. Known as McDonald’s, this burger chain began at its first location on 1398 North E Street at West 14th Street in San Bernardino, California. Unknown to nearly 99% percent of the world’s population, McDonald’s Corporation hits the market under the ticker symbol MCD and celebrates its first day as a public company.
Now nearly 35 years later, McDonald’s Corporation (NYSE: MCD) is set to open at $92.29, representing a 7,403.25% return to initial investors, not including dividends. Presently, McDonald’s Corporation is the largest hamburger fast food chain on the face of the Earth, and serves approximately 68 million customers every single day. McDonald’s is currently found in 119 countries ranging from some of the most developed countries in the world, such as the United States, to some of the poorest countries in the world, such as Nicaragua. The graph below shows McDonald’s Corporation’s global wingspan and the year McDonald’s was introduced to the specific markets. So can McDonald’s Corporation continue to provide encouraging returns to its investors over the coming years?
Solid and Reliable Growth
Reported earnings per share were $4.60 in 2010. In 2011, reported earnings per share jumped 14.56% to $5.27. This incredible growth was one of the highest growth rates in the Dow 30 during this time. In 2012, earnings per share are expected to total $5.58. This represents 5.88% year over year growth. Again in 2013, earnings per share are expected to grow at a dramatic rate. In 2013, earnings per share are expected to reach $6.15. Once again this displays impressive 10.21% year over year growth. McDonald’s is expected to pull this growth from its APMEA region (Asia-Pacific, Middle East, and Africa). From 2010 to 2011, this was McDonald’s second fastest growing region, showing 16% growth. The United States showed 5% growth during the same time period, while Europe presented 14% growth. McDonald’s fastest growing region was its other countries and corporate sector, growing at 17%. McDonald’s Corporation’s diversified portfolio of growth will help balance regions experiencing economic difficulties. Just take a look at McDonald’s growth in sales, operating profit, net income, net margin, and operating margin over the coming years.
Consistent Dividend Growth and Payouts
Currently, McDonald’s pays a quarterly dividend of $0.70, or an annual dividend of $2.80, which yields 3.03% at the price of $92.29. McDonald’s has been paying out dividends for 25 straight years, with yearly dividends stretching from 2000 to 2007. McDonald’s is expected to continue to pay out dividends in the coming years. McDonald’s rock-solid growth is essential in its plan for paying out dividends, as without the growth, paying out dividends would become an unsustainable source of income for investors. Additionally, McDonald’s is expected to grow and expand its dividend payments over the coming years. In 2013, the dividend is anticipated to grow to $3.12 yearly, representing 11.42% year over year dividend growth. Again in 2014, the yearly dividend is expected to grow, this time to $3.46, displaying 10.89% year over year dividend growth. McDonald’s Corporation’s dividend makes the stock the perfect long term investment for income hunters. Just look at MCD’s earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.
McDonald’s is The Burger King
McDonald’s outpaces or nearly matches almost all of its competitors, such as Darden Restaurants Inc. (NYSE: DRI), Tim Hortons (NYSE: THI), and Yum! Brands Inc. (NYSE: YUM), in most fundamentals metrics:
|
MCD |
DRI |
THI |
YUM |
|
|
1 Year EPS Growth |
11.30% |
-0.20% |
-40.10% |
13.90% |
|
3 Year EPS Growth |
10.81% |
11.31% |
23.94% |
12.35% |
|
5 Year EPS Growth |
17.01% |
17.78% |
18.80% |
12.65% |
|
1 Year Dividend Growth |
2.80% |
2.00% |
0.83% |
1.14% |
|
3 Year Dividend Growth |
11.64% |
23.83% |
27.31% |
12.29% |
|
5 Year Dividend Growth |
17.45% |
26.06% |
26.45% |
17.83% |
|
Current Dividend Yield |
3.03% |
3.98% |
1.56% |
1.76% |
|
Price to Earnings Ratio |
17.24 |
13.99 |
21.95 |
20.52 |
|
Price to Earnings to Growth Ratio |
1.60 |
1.02 |
1.54 |
1.32 |
|
Market Capitalization |
93.79 B |
6.46 B |
8.24 B |
29.81 B |
Source: DailyFinance.com
McDonald’s does not have the explosive growth that some of its smaller competitors possess, but pays out a solid and growing dividend and will experience moderate growth in its earnings per share and dividend over the coming years. Additionally, McDonald’s is the largest company in the sector, adding a factor of greater stability through rough times, and is relatively cheap compared to its competitors.
The Foolish Bottom Line
McDonald’s has restaurants in 119 countries all over the world. It is not going to grow at the amazing speeds it has in the past, but it will find growth in emerging markets economies. McDonald’s is one of the safest places for investors to place their money in this volatile environment, as McDonald’s pays a 3.03% dividend, well north of the 1.52% yield on the 10-year treasury. It will not offer returns like it has over the past 35 years, but it will provide dependable and reliable returns year after year, making McDonald’s well worth its weight in gold.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Darden Restaurants and McDonald's. Motley Fool newsletter services recommend McDonald's, Tim Hortons, and Yum! Brands. 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.If you have questions about this post or the Fool’s blog network, click here for information.
