Recent Purchase – MCD

McDonalds needs no introduction as it is one of the most popular brands across the world. Among investors (especially dividend investors), this is a popular stock to hold. Of course, I have not been holding it and hence I have initiated a position in the stock.

I purchased 18 shares at $98.00 on 7/21/2014. With commission, the total cost comes to $1,771.00. With a quarterly dividend of $0.81/share, the yield comes to 3.30% and this purchase adds $58.32 to my forward annual dividends.

McDonalds is a Dividend Champion with 38 consecutive years of dividend raises and is a stable company to be invested in. They are not a high growth company, but does offer slow but consistent growth.

Between 2008 and 2013, its revenue has increased from 23,522 Mil to 28,106 Mil which represents a CAGR of 3.62%. During the same period, the net income has increased from 4,313 Mil to 5,586 Mil representing a CAGR of 5.31%.

In addition to paying and increasing dividends, the company has also been buying back shares. The number of outstanding shares has gone down from 1146 Mil at the end of 2008 to 1006 Mil at the end of 2013. This represents an annual reduction of 2.57%. This and increased income has resulted in the EPS increasing from 3.76 to 5.55 during the same period representing a CAGR of 8.09%. That is quite impressive for a company that is past its high growth stages.

Morningstar has a fair value of $105.00 for the stock and it is rated 4 stars.

But the company is not without its problems. The revenue growth has come to a standstill (or even reduced) in lot of markets including US, Europe which represents a huge chunk of its revenue. One of the main reason is due to reduced sales because of customer being more health conscious. Also, there is more competition in the breakfast segment (which is a dominant one for McDonalds). Competition from Taco Bell and other fast casual joints like Panera Bread. They also announced their quarterly results this morning (7/22) and the stock has taken a beating. Maybe I could have waited for a day to make the purchase. But I hope that in the long run it shouldn’t matter.

The company has been introducing healthier options to cater to the shifting needs of the customers. Also, the company has been opening new stores in Asia which represents a huge growing market and could represent a bigger percentage of its revenue in the near future.

I still feel that the company is definitely a solid one to hold for long-term with growth in developing markets helping its bottom line and also as the company adapts to shifting customer needs with healthier/premium options.

The portfolio page will be updated soon to reflect this purchase.

Disclosure: Long MCD

Image courtesy: McDonalds.com

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6 thoughts on “Recent Purchase – MCD

  1. DGJ,

    You picked up a historically great company here and congrats on adding to your flow of income. I’m thinking about jumping on MCD as well. With the negative press coming in about the rotten food at Shanghai Husi Food Co. in China I’m wondering if the price will go any lower. You’ve got a great and safe yield already, but maybe you’ll be able to pick up a little more if does retreat.

    All my best,
    Ryan

    • Thanks. MCD has been having its problems lately, but they will bounce back as their changes slowly take effect. And no doubt, it is a great company to be invested in. If it goes lower, I might grab some more too.
      Thanks for stopping by.

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