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: Slow but Steady Growth
How consistent has McDonald’s stock been? It’s up 10% over the last year (vs. an 8% decline in the S&P), up 65% in the last five years and 183% in the last decade. Now, that’s not setting the world on fire – only the one- and five-year returns exceeds that of the S&P 500 over the comparable time periods. However, when you sprinkle in the 2.2% dividend yield – much better than the 1.7% average dividend yield for the S&P 500 – the combination of reliable income and consistent returns makes MCD stock more appetizing.
And now is a good time to buy. Why? Because the company is on track for 12% sales growth this year, and yet the stock trades at a more than palatable 25.9 times forward earnings – well below industry peers CMG (forward P/E of 40) and SHAK (an astronomical 417 times forward earnings).
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Meanwhile, MCD stock remains a Dividend Aristocrat; the company raised its dividend yet again in November, up to $1.38 per share from the previous $1.29 quarterly payout. It’s the 45th straight year the company has raised its dividend payout.
As you can see in the chart below, the stock suffered a bout of selling pressure in March given the company’s exposure in Russia (which it anticipates will translate to a $1.2-1.4 billion loss), although the company recently completed the sale of its Russian assets to a Siberian franchisee.
After a quick reversal, the stock was once again dragged lower by the broader markets in May, likely attributable to anticipated weakness in consumer spending highlighted in Target’s (TGT) earnings miss.
Short-term investors would be best served waiting for a technical reversal or gradually entering a position through a dollar-cost-averaging strategy. But for long-term investors, the entry point may not matter much. McDonald’s stock has consistently held up well in market downtrends, as it did in September, rising while the S&P 500 was down nearly 5%.
MCD Still a Long-Term Play
While it’s long past peak perception, the profit and sales growth 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 have been growing much faster (no pun intended), but none of them offer McDonald’s combination of steady 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.
Do you have McDonald’s stock in your portfolio?
*This post has been updated from an original version, published in 2018.