Source: PaxForex Premium Analytics Portal, Fundamental Insight
The emblematic global restaurant chain McDonald's is actively recovering after a pandemic crippled sales two years ago. The company is thriving as consumers seek comfort and affordability, two things that some 40,000 restaurants around the world offer in abundance.
Understandably, investor interest increases as the company's operating performance enhances. Let's take a look at McDonald's prospects, dividends, and valuation, and decide whether investors should add this company's stock to their portfolios.
Notably, McDonald's earnings in 2021 exceeded 2019 levels. This is a very important metric, as revenues fell 10 percent in 2020 when the company was reluctant to close many of its locations so it could serve customers locally. More specifically, revenues were $23.2 billion in 2021, up from $21.3 billion in 2019. This growth was driven by more convenient ordering and delivery options.
In 2021, digital sales exceeded $18 billion and accounted for more than 25 percent of total sales in the company's six largest markets. People can now use the McDonald's app to order and choose their desired delivery method (pick up or delivery). This feature adds another level of convenience, which is one of the main reasons people choose McDonald's, and the $18 billion in digital sales proves how highly it is valued. The delivery option, in particular, could be a real breakthrough in the coming years. It expands the geographic reach of every McDonald's restaurant and serves consumers who don't want to or can't walk or drive to the nearest restaurant.
The growth in digital sales is also good for McDonald's profits. The company operates only 7% of its restaurants; the rest are franchised. Thus, the additional sales growth is good for the bottom line. It's also good for franchisees since one of the main problems lately has been retaining enough staff to meet demand. Digital orders can signify fewer cashiers or operators, which reduces labor costs for restaurant operators.
This partly explains why McDonald's posted record earnings per share in 2021. Profit is a critical element of a company's ability to pay a dividend. Without sufficient profits, dividends cannot be sustained over the long term.
McDonald's profitability implies that the company can continue to pay out and increase its payout, as it has for many years. Since 2012, the company has increased its annual payout from $2.87 to $5.25, extending a nearly five-decade streak of dividend growth.
With a price-to-earnings ratio of 25 and a price-to-free cash flow of about 27, McDonald's is trading near its five-year average on these metrics. Given McDonald's outstanding long-term prospects, investors can safely add McDonald's stock to their portfolios.
As long as the price is below 255.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 250.78
- Take Profit 1: 247.00
- Take Profit 2: 240.00
Alternative scenario:
If the level of 255.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 255.00
- Take Profit 1: 262.00
- Take Profit 2: 266.00
