Source: PaxForex Premium Analytics Portal, Fundamental Insight
McDonald's stands out as an unparalleled symbol of the fast-food industry, having transformed and defined the sector since its inception. With a global presence, its distinctive golden arches are instantly recognizable across the world.
While McDonald's has undoubtedly been a timeless and prosperous brand, having enriched many investors over the years, past success alone does not guarantee future returns. Nevertheless, three compelling reasons underscore why investors should consider McDonald's for a long-term investment.
Robust Dividend Growth
McDonald's extensive history suggests that expecting rapid stock price surges is unrealistic. However, its dividend presents a compelling case for investors. Currently standing at $1.67 per share on a quarterly basis, the trailing 12-month yield hovers just below 2.2%. Although not the highest on the market, McDonald's dividend is reliable and shows a positive trajectory.
Beyond a steady dividend, McDonald's distinguishes itself by consistently increasing its annual dividend for an impressive 47 consecutive years, positioning it on track to achieve Dividend King status. The recent 10% boost to its dividend marks the culmination of a decade during which the company more than doubled its payout.
Concerns about the stability of McDonald's dividend are alleviated by its reasonable payout ratio of 53%, indicating a healthy balance between dividend payments and retained earnings for crucial business initiatives such as expansion, marketing, and technological advancements (such as app and kiosk ordering systems).
Global Expansion Through Localization
McDonald's, originating in San Bernardino, California, has evolved into a global giant with over 40,000 outlets spread across more than 115 countries. The company's success in its global strategy is underpinned by a savvy approach to localization.
Operating seamlessly in one's home country, where familiarity prevails, is comparatively straightforward. However, navigating international markets is a complex challenge due to the diverse preferences, customs, and unique factors in each country. McDonald's has effectively tackled this hurdle through a commitment to localization, tailoring its offerings to align with local tastes.
Illustratively, this approach is evident in regional menu adaptations like the Ebi Filet-O in Japan, the McSpicy Paneer in India, the McKroket in the Netherlands, and the Bubur Ayam McD in Malaysia. These are just a few instances, with numerous similar adaptations globally.
In the third quarter, McDonald's demonstrated the success of this strategy, reporting sales growth of 8.3% and 10.5% year over year in its internationally operated markets and international developmental licensed markets segments, respectively. Notably, this outpaced its 8.1% growth in the US.
Franchisee-Centric Business Model Boosts Margins
Despite its vast global footprint, McDonald's operates only a fraction of its locations—approximately 5%. The majority of its restaurants are owned and operated by franchisees. McDonald's often retains ownership of the real estate, which franchisees lease or rent. This dual revenue stream includes income from franchisee fees and revenue generated through leases and rents.
In the first three quarters of 2023, McDonald's amassed over $19 billion in revenue, with approximately $11.5 billion stemming from franchised restaurants. Notably, a significant portion of this revenue from franchised outlets is derived from rental income.
The shift toward a more franchisee-centric model has positively impacted McDonald's gross profit margin, given that rental income typically carries higher margins than operational income from food sales. This strategic shift positions the company to uphold shareholder-friendly practices, including substantial share buybacks (exceeding $2.2 billion in the first three quarters of 2023) and dividends, delivering enduring value for investors.
As long as the price is above 275.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 286.55
- Take Profit 1: 295.00
- Take Profit 2: 305.00
Alternative scenario:
If the level of 275.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 275.00
- Take Profit 1: 270.00
- Take Profit 2: 260.00