Source: PaxForex Premium Analytics Portal, Fundamental Insight
McDonald's stock in 2023 has experienced fluctuations, soaring at times due to strong fundamental performance but taking a downturn when it announced the first increase in franchise royalty fees in nearly three decades. Despite this, the company has recently demonstrated confidence in its future by significantly raising its dividend, prompting an examination of whether this supports a compelling case for investing in the restaurant giant.
In the latest announcement, McDonald's revealed that its upcoming quarterly payout would be $1.67 per share, representing a 10% increase from the previous distribution. This move extends the company's impressive track record, marking the 47th consecutive year of dividend hikes, showcasing its commitment to long-term thinking.
While the consistent dividend growth is reassuring, it also serves practical purposes. The company's stock price has shown a steady upward trend over the years, and dividend raises play a role in maintaining the stock's competitive yield. At the most recent closing price, the new dividend equates to a respectable 2.5% yield, contributing to investor loyalty and retention.
McDonald's is not a stagnant business; it actively strives to expand its dominant position as the leader in fast food with a clear and dynamic strategy. Despite the challenges, the company's recent dividend increase suggests a positive outlook, adding another layer to the ongoing narrative of its financial performance.
The initiative known as "Accelerating the Arches" signifies a strategic focus for McDonald's, encapsulated in three key growth pillars: maximizing marketing efforts, emphasizing core menu items (including burgers, chicken items, and coffee), and reinforcing its "4Ds" approach, encompassing delivery services, digital and drive-thru sales, and business development.
Although investors initially expressed concerns over the royalty raise for new franchisees - from 4% to 5% - we view it as sound business practice, considering the evident busyness of McDonald's establishments reflected in strong company fundamentals. A single percentage-point increase seems unlikely to deter potential franchisees from engaging with a visibly expanding business.
Executing a straightforward strategy in a complex business like McDonald's is no small feat, but the management team appears to have succeeded admirably. In the third quarter, the company achieved nearly 9% year-over-year growth in worldwide comparable-store sales, resulting in a substantial 14% increase in consolidated revenue.
The positive results extended to net income, which experienced a notable 17% rise. These figures are particularly impressive for a company already boasting a substantial global footprint and a dominant position in its sector worldwide.
While not a regular McDonald's customer, my occasional visits have revealed that the company's focus on specific products and processes resonates well with consumers. The drive-thru lanes consistently boast activity, and inside the restaurants, touch-screen ordering kiosks streamline the process efficiently. Classic menu items take center stage, complemented by occasional introductions of new offerings.
McDonald's adeptly balances its coffee offerings, catering to java enthusiasts without overwhelming the menu - a feat reminiscent of its caffeinated drinks rival, Starbucks. Overall, McDonald's seems attuned to the preferences of the modern fast-food and beverage consumer, providing a compelling reason to maintain a bullish outlook on the company.
This confidence is bolstered by performance expectations; consensus analyst estimates project over 10% growth in total sales this year, accompanied by a substantial 17% increase in per-share net income. Anticipating further success, it's plausible to envision another noteworthy dividend raise based on these improvements.
For those interested, there's still an opportunity to benefit from McDonald's latest dividend raise, scheduled for payout on December 15 to investors recorded as of December 1.
As long as the price is above 265.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 275.84
- Take Profit 1: 280.00
- Take Profit 2: 285.00
Alternative scenario:
If the level of 265.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 265.00
- Take Profit 1: 261.00
- Take Profit 2: 255.00
