Sometimes I have a hard time buying stocks that, philosophically, go against my grain—especially stocks like tobacco, alcohol or gambling companies. And today—with all the emphasis on good nutrition and exercise—fast food stocks can be lumped into that category.
But more than 20 years ago when my nieces and nephew were born, I decided that instead of showering them with toys and clothes as the other members of my family did on each gift-giving occasion, I would buy them stock. I had experience with kids and investing—I started an investment club for gifted children at about the same time—I knew that kids would be more interested in learning about stocks in which they had a vested interest. Things like fast food, toys, games, etc.
Consequently, I pushed my “this is an unhealthy choice” thoughts to the back of my brain, and invested in a McDonald’s (MCD) dividend reinvestment plan for each child. Truthfully, the kids could have cared less about learning about the stock (unfortunately!), but over the years, they did enjoy leafing through the annual reports and ripping out the food coupons! And when they eventually cashed out when they headed to college, we were all very glad that I chose the stock.
My split-adjusted cost for those beginning shares was around 4.50 per share; when my oldest niece graduated high school, she cashed hers in at around 47 per share; my nephew at 55 a share; and my youngest niece at 79 per share. Needless to say, they were thrilled to receive nice checks to help them with their college expenses.
Today, McDonald’s shares opened at 112.53.
Rising Share Price and Rising Dividends
No doubt McDonald’s has had its share of ups and downs through the years—especially in light of the focus on healthier foods. Yet it continues to evolve with the times, manages to capture new devotees, expand into new markets and create healthier menu options that keep adding to the bottom line.
McDonald’s was featured in a recent Wall Street’s Best Dividend Stocks issue, contributed by Stephen Mauzy and Ian Wyatt of High Yield Wealth.
Here’s an excerpt:
“McDonald’s is a top 10 global brand. According to Interbrands, a brand-management consultant, McDonald’s ranks ninth, with a $42.3 billion market value. Strong brands have the same effect on consumers that magnets have on metal shavings—they draw them in.
As for performance-oriented culture, McDonald’s management is aggressively addressing the concern du jour—stagnating same-store sales. Management doubled-down on value. This past summer, McDonald’s introduced a double-cheeseburger and fries for $2.50. The focus on value has won over more customers.
Even more customers will be won over by the latest initiative. Initial indicators point to full-time success for the former part-time breakfast. McDonald’s rolled out all-day breakfast earlier this month. So far, so good: Restaurant traffic has picked up and consumer perception of McDonald’s has improved.
In addition, McDonald’s management continues to improve efficiency by expanding the franchise footprint. The goal is for franchisees to own 90% of the restaurants by 2018, up from 81% today. Putting more restaurants in the hands of franchisees will help cut general and administration expenses $300 million annually by 2017.
Putting more cash in the hands of shareholders will improve investor perception. Management expects to return $18 billion to $20 billion to shareholders this year through 2017. By the end of December, $8 billion to $9 billion will have been returned to shareholders through share buybacks and dividends.
Also expect a dividend increase, which traditionally comes with the fourth-quarter payout. The next increase will market the 39th-consectuive year McDonald’s has increased its dividend.”
Some things never change for McDonald’s shareholders. Those who continue to hold their shares continue to capture a rising stream of income and a rising share price. McDonald’s proves that great brands, great management and great dividend growth lead to great wealth over time.
Focus on Value is Paying Off
Just yesterday, the company announced a new promotional offer designed to push same-stores sales momentum into 2016—McPick 2 for $2—a value platform that will replace the Dollar Menu in January, and will run for five weeks.
It will also begin offering customized burgers through its “Create Your Taste” program, and has developed new cooking methods to make its buns and meats tastier. You’ve no doubt heard that McDonald’s has also begun serving breakfast all day—apparently in response to customer requests.
The company beat analysts’ estimates by twelve cents last quarter, and 25 firms have increased their 2015 forecasts in the past month. The shares have a current dividend yield of 3.24%, paid quarterly. Ten analysts currently rate the stock a “Buy.”
And while I’m no aficionado of fast food, I have to say that this stock has been very good to me and mine over the years, and it continues to look attractive.
Happy investing!
Nancy Zambell
Editor, Wall Street’s Best Investments and Wall Street’s Best Dividend Stocks
