Why It's Time to Buy McDonald's Stock

McDonald's (NYSE: MCD) is the most recognized fast-food brand in the world, offering a value-priced menu at about 38,000 restaurants in 120 countries. The chain has been in news recently for the dismissal of CEO Steve Easterbrook over a consensual relationship with an employee. It violated company policy, and Easterbrook had to relinquish his seat on the company's board. Post that, McDonald's shares sank 2.3%, wiping out about $4 billion of the company's value. 

The company-operated stores fell from 5,700 to 2,635 between 2016 and 2019. That said, the number of franchised stores increased from 31,200 to 35,663. McDonald's made a profit of $2.11 per share and generated revenues of $5.4 billion in the third quarter. There was a 1.1% rise in revenue and global same-store sales increased by 5.9% in this period, which is the 17th consecutive quarter of positive sales.The company has a third-quarter net income of $1.6 billion. The company has a P/E of 25.30, equal to an earnings yield of 4%. 

MCD has strong fundamentals and is a good buy

Source: Getty Images

The payout picture

With over 40 consecutive years of annual dividend increases, McDonald's is a Dividend Aristocrat. The company just increased its quarterly dividend by 8% to $1.25 per share. It has issued dividends every year since 1976. The company has repurchased the shares at a meaningful rate in the last few years which has boosted the earnings per share and supported the stock price. 

MCD Dividend Yield (TTM) Chart

MCD Dividend Yield (TTM) data by YCharts

Banking on technology

McDonald's is betting on technology and has made three significant investments in the year. Earlier in the year, McDonald's announced a $300 million acquisition of  artificial intelligence (AI) company Dynamic Yield. This is the largest acquisition by the company in 20 years, and it has already rolled out AI technology to 9,500 drive-thrus in the U.S. It aims to boost efficiency and customer satisfaction through self-order kiosks and drive-thru menus.

AI offers drive-thru menus that change according to the weather, time of the day, traffic and the customer's order. The purpose is to coax the costumer to spend more. The company recently agreed to acquire Apprente, that uses AI to understand speech.MCD also holds a minority stake in Plexure, a mobile app vendor. With a 9.9% stake in Plexure, MCD engages with the customers through their mobile devices by offering loyalty programs, offers and encourages mobile ordering.

Tapping into delivery

Delivery is a business that the company has only started to tap into. It is expected to be a $4 billion business for the company, which is about 4% of the total sales. Currently, the service is offered in 23,000 restaurants across the world. The average check of delivery order is two times higher as compared to other orders.

"McDelivery Night" in September was the biggest delivery day in the history of the company. The addition of DoorDash has led to an increase in delivery sales and exposed the company to new customers. The company plans to do the same in International markets. 

McDonald's plans to become 95% franchised in the long run, but it should shield it from operating problems and management will have to remain on its toes strategically. McDonald's future plans and growth numbers make it a strong candidate in the market. 

10 stocks we like better than McDonald's
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and McDonald's wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of June 1, 2019


Vandita Jadeja has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.