McDonalds: Been Lovin It Since 1965

McDonalds (NYSE: MCD) is one of the most globally recognized brands, with more than 36,000 locations in over 100 countries.

Whether you’re a fast food junkie or not – you can’t argue with their long-term success. Be it their real estate holdings or franchising operations, McDonalds is a powerhouse that has provided investors with a mountain of value since they first started trading in 1965.

Over the years McDonalds has continued to provide not only great value, but even better returns. If you would have invested $10K ten years ago (and reinvested dividend payments) that investment today could be worth $52,062. Go back 20 years and that same ten thousand investment morphs into $85k.

That’s why they’re a great case study: Outstanding stock price appreciation. Historically growing revenue and profits. Habitually increasing their dividend (every year since 1976!) and adding shareholder value through stock buybacks and splits.

If you look at technical analysis as a means to find a short-term buying opportunity – then look at fundamental analysis to find long-term growth.

Is the company growing revenues – cutting down margins – expanding – what’s the top and bottom line numbers?

Something else I like to look at are the opinions of other analysts – did they beat estimates last year – last quarter… and what did the stock do as a result.

What about dividend growth? Share buybacks? Stock splits?

Has the company bought-out competitors? Raised capital? What was that money used for – growing more or paying off management?

McDonalds is a great example of a company with strong fundamental growth.

Looking back to 2006, the stock is up more than 420%.

Dating back to 1996 – the stock is trading more than 752% higher.

Take a look at their chart from the last 5 years:



http://stockcharts.com/h-sc/ui

As history tends to repeat itself, shares in MCD continues to climb higher. Looking at their chart above you can see that shares are up from around the $70 range to the $120 range, a gain of more than 70%.

Looking from last April, when shares were trading around $90 – shares are up more than 30%.

So is now a good time to invest?

When you look at their historical performance… the answer should be a resounding YES.

For one, it’s their commitment to adding shareholder value. From 2007 through 2013 they bought back almost 664 million shares.

They’ve increased their dividend payment each and every year since 1976 – which is now at $3.56 a share.

According to their website “Since going public in 1965, McDonald’s has executed twelve stock splits. In fact, an investment of $2,250 in 100 shares at that time has grown to 74,360 shares worth approximately $7.0 million as of market close on December 31, 2014.”

As you can see MCD is committed to buying back shares, increasing dividend payments and has a tendency to use stock splits when needed. Just great long-term value here for investors.

But let’s fast forward to today… On April 22 they reported their Q1 data from 2016 – and their numbers are more than impressive…

A big part of their success has been contributed to their all-day breakfast and McPick initiatives. This led to a 5.4% increase in comparable sales, beating estimates of a 4.7% gain. Domestic and international sales (in both mature and emerging markets) were all up.

Analysts had expected an earnings per share of $1.16 – they reported EPS of $1.23. Each of the last 4 quarters they beat analyst’s estimates.

And while it might be a surprise for some analysts, it’s not that surprising to see that their Q1 EPS was 46% higher than Q1 2015.

Revenue was down 1% from last year but that can be contributed to currency exchange rates – basically sales were affected internationally when translated back into the dollar. Without the currency exchange – revenue was actually up 3% from last year.

Both operating and net income were up – 28% and 35% respectively.

Overall, I think McDonalds is a fundamentally strong company. They’ll have their ups and downs but a strong management team and business strategy will keep them moving higher in the long run…

Historically this stock is a winner and a solid earner for any portfolio.

Regards,

Ethan Warrick


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