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 McDonald’s stock continues to consistently outpace the market while remaining a reliable dividend grower.
McDonald’s Stock on a Roll
How consistent has McDonald’s stock been? It’s up more than 33% in the last year, crushing the mere 7% in the S&P 500; going back further, it’s more than doubled the return in the S&P over the last two- and five-year periods. Amazingly, MCD’s biggest move in the past year came during the October-November market correction; boosted by strong third-quarter earnings, the stock jumped 13% to reach new all-time highs above 189. It’s currently establishing new highs above 212.
What’s going right for the company? A revamped Dollar Menu has led to higher spending per customer in the U.S., while the restaurant’s overseas performance has been particularly encouraging. That trend continued in the first quarter, as international same-store sales grew by 5.4%.
Who doesn't? You can easily find them in this FREE Special Report:
Cabot’s Best Dividend Stocks
You get this free report and many others relevant to these current times when you sign up for Cabot Wealth Daily, our free wealth-building advisory.
Looking at forward expectations, sales are expected to decline this year and next. But profits are improving; analysts anticipate 1% EPS growth this year and another 8% growth in 2020.
Meanwhile, MCD stock remains a Dividend Aristocrat; the company recently hiked its quarterly dividend by a whopping 15% to $1.16 per share, good for a 2.2% 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 nearly five months, with the 50-day line trending upward since late February.
The stock broke to new highs in late March, and spent the next month rising steadily. For the ensuing six weeks, it was stuck in a range between 194 and 199. But last month’s break above 200 signaled the start of a new phase in MCD’s rally, and it’s pushed higher by another 6% in the last month.
Trading at 28 times earnings, MCD isn’t really cheap or expensive, though it could be deemed a bit overvalued given the very modest EPS growth expectations for this year. That has the potential to throw cold water on the current rally. But don’t bet on it; McDonald’s stock has consistently held up well in market downtrends over the past year, so P/E concerns aren’t likely to suddenly surface.
MCD Still a Long-Term Play
While it’s long past peak perception, and sales are growing slowly in part because of the company’s efforts to renovate 12,000 stores in the U.S. by the end of this 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!
*This post has been updated from an original version, published in 2018.