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Cash in on McDividends
Posted on | January 22, 2013 | Comments Off
With those ubiquitous golden arches, McDonald’s is the largest fast-food chain in the world with over 33,000 restaurants serving almost 70 million people in 119 countries from Argentina to Iraq, Bosnia to the Philippines. Whilst McDonald’s may not be the most PC of companies to invest in (they have addressed these concerns by changing coffee suppliers for example), their aggressive expansion program makes now a good time to invest. They aim to expand at a rate of 30 new restaurants per year in the UK alone
McDonald’s is one of the S and P 500 Dividend Aristocrats, alongside companies such as Procter and Gamble and Coca-Cola, who have increased their annual dividends every year for the last 25 years.
The company has a market capitalization of $84.45 billion. Employing 420,000 people worldwide, it generates revenue of $27.006 billion and has a net income of $5.503 billion. McDonald’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $9.766 billion., and the net profit margin is 20.38 percent
Strong Business Model
McDonald’s business model differs from that of other fast-food companies, as more than 80% of restaurants worldwide are franchised, giving higher growth margins to McDonald’s. T he company owns the property which houses the restaurants, and alongside franchisee fees and marketing fees, the franchisees pay rent to the Corporation, often based on a percentage of sales, providing a constant revenue stream.
Growth in China
McDonald’s Corp is rapidly expanding in China, and has been certified as one of their Top Employers for 2013, with over 90,000 employees. More than half of new restaurants opened in China last year were drive-throughs, capitalizing on the country’s automotive industry boom. The Corporation aims to open 600 new restaurants by the end of 2013, on top of its existing 1400. However, only 36 of these are franchises, something which McDonald’s aims to expand on in 2013.
Risk
Although the overall picture for McDonald’s is that of growth, their figures for the last twelve months show a drop in share prices of almost 9%. However, in 2011 share prices rose by 30% and by 23% in 2010. With the recent horsemeat supermarket burger scandal in our minds, it is prudent to remember that all it takes is another meat scandal as serious as the ‘mad cow disease’ BSE crisis of the 1980s to make share prices plummet.
McDonald’s has responded to the risk of other multinational high street ventures such as Starbucks by aiming to refit all of their 14 000 restaurants by 2015, giving them a comparable ‘coffee-shop’ feel. The Corporation has broadened its range to include more varieties of coffee, such as latte and espresso, and also including iced fruit smoothies. Coffee shop staples such as free Wi-Fi and wrap-style sandwiches are now also on the menu, making the menu and ambience more appealing to women and the over-55s.
In recent years the company has responded to consumer health concerns and revamped its traditional menus, alongside tailoring menus to local tastes and developing home delivery in the Asian market. Regional variations include the McFalafel sandwich in Egypt, mung bean flavored ice cream in Hong Kong and empanadas and burritos in Venezuela. They also plan to open a vegetarian-only restaurant in India in 2013.
McDonald’s does not always fare well against competitor fast-food retailers, such as Burger King, who recently returned to the stock market less than two years after a private take-over. In the third quarter of 2012, Burger King reported stronger than expected sales while McDonald’s had its worst restaurant sales in nine years.
Five Reasons to Invest
- McDonald’s has raised its dividend each and every year since 1976
- Recent 10% increase in quarterly dividend
- Dividend yields 3.5%
- Focus on global growth, especially in Asia and Eastern Europe
- McDonald’s has returned over 8000% in the last 30 years
How to invest
Buying and selling shares online has never been easier, and many services offer a flat fee and cheaper rates for regular traders. Some even offer ‘DRIP’ plans where investors can purchase shares directly from the company rather than through a broker, thereby saving money and cutting out the middle man. Comparison sites allow you to compare fee rates for different online dealers.