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) or a recovering one like Chipotle (CMG). But MCD stock continues to consistently outpace the market while remaining a reliable dividend grower.
How consistent has MCD been? It’s up 7% year to date, ahead of the measly 1.4% return in the S&P 500; in fact, it’s doubled the return in the S&P over the last two years. Amazingly, MCD’s biggest move this year came during the October market correction; the stock jumped 13% in the last month to reach new all-time highs above 185.
Strong third-quarter earnings helped. A revamped Dollar Menu led to higher spending per customer in the U.S., while the restaurant’s overseas performance was particularly encouraging. Though earnings and sales declined year over year, both numbers came in well ahead of analyst expectations. Wall Street focused solely on the good, pumping up McDonald’s shares by 6% in one late-October trading session—the stock’s largest one-day percent increase in three years.
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Sales are expected to decline this year and next. But profits are improving; analysts anticipate 16% EPS growth this year and another 6% growth in 2019.
Meanwhile, MCD stock remains a Dividend Aristocrat; the company just hiked its quarterly dividend by a whopping 15% to $1.16 per share, good for a 2.6% yield. It’s the 42nd straight year the company has raised its dividend payout.
The chart looks good too, trading above its 50- and 200-day moving averages for two months, with the 50-day line trending upward since the beginning of August.
Note that until this month, MCD stock was actually capped by its January peak. Thus, the recent break above resistance at 178 could mark the beginning of a much longer rally, especially if the market finally gets its act together.
All of that begs the question: should you buy MCD stock? I’d wait for the next pullback, with the stock touching new highs again on Monday despite another down day for the market. Trading at 27 times earnings, MCD isn’t really cheap or expensive. But the holidays are typically bullish for fast food stocks, McDonald’s in particular; the stock’s average return in November and December the last two years is close to 6%.
That bodes well for the short term, but MCD is not really a short-term stock. While it’s long past peak perception, and sales are not growing in part because of the company’s efforts to renovate 12,000 stores in the U.S. by the end of next year, the profit growth, momentum in the chart and rock-solid dividend continue to make MCD stock a good long-term investment for growth investors and income investors alike.
There are fast food stocks that are growing much faster, but none of them offer McDonald’s combination of market-beating 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.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!