McDonald’s (NYSE: MCD) is one of the most recognizable brands in the world and a longtime component of the Dow Jones stock market index. But with a market cap of about $80 billion, this blue chip firm’s reach is as much of a turn-off to investors as a reason to buy into McDonald’s stock. After all, how much bigger can MCD get, and how much faster can it grow?

McDonald’s has proven itself in the last year or so, with MCD stock up about +30% in the last year and currently up against a new 52-week high. But investors right now don’t care much about they past – they want to know if McDonald’s stock is moving higher or if it has peaked.

Here are some arguments on both sides, with the pros and cons of McDonald’s stock now:

Reasons to Buy McDonald’s Stock

MCD is Restaurant Royalty: The obvious reason many low-risk investors are drawn to McDonald’s is because its stock is stable and it has a dominant business force. The company has 36,000 stores and a presence in most of the world’s large markets. It also is more of a staple company than a discretionary expense, with its value menu making meals sometimes more affordable than even a trip to the grocery store.

Aggressive Global Growth: MCD has created a beach head in China, and the sky is the limit for growth there. Its major competitors, Burger King and Yum! Brands trail it in locations and sales. What’s more, during the recession McDonald’s managed to eke out growth even as same-store sales declined domestically thanks to booming expansion abroad.

McDonald’s Tasty Dividend: Last week, the fast food company hiked its quarterly dividend by six cents to 61 cents per share on the quarter. McDonald’s has a history of raising dividends every year since it paid its first dividend in 1976 and that brings the forward annual dividend yield as of September 23, 2010, to 3.27%. What’s more, the company has enough share that a year ago, McDonald’s put a share buy-back of $10 billion in place. That coupled with a dividend hike lets you know McDonald’s cash position is quite sound.

Reasons to Sell McDonald’s Stock

Saturation Point: McDonald’s strength of size and scale is also one of its weaknesses. It is close to saturating its market, at least in developed countries in North America and much of Europe. This is a problem that it has in common with other well-established firms. McDonald’s may post steady growth, but it can no longer post rapid growth – and it will have to keep rethinking its business or risk getting stale. It’s nice to see the buybacks and dividends from MCD stock, but the reality is that the company is passing its cash balance to shareholders and not using it for expansion since there are few places to grow anymore.

Success Baked into MCD Stock: The more timely argument against McDonald’s as a stock with significant advancement potential is that, at $75, it trades very near its all-time high. The company has soared from $14 in early 2003, so +400% returns even in the face of a market meltdown seem a bit much for a pick of this size. Shares that have made moves which are so impressive are often those that fall sharply when a company misses earnings. McDonald’s trades so remarkably high that its downside is much greater than its chance for sharp improvement.

What’s the Next Trick? Much of McDonald’s domestic growth recently is due to the launch of its McCafe coffee line about two years ago. Prior to that, it was the Dollar Menu that has now become ubiquitous at fast-service restaurants. So what’s next?  The company made another push into the specialty beverage market with smoothies, but with limited success. There’s also a move towards premium burgers with bigger margins such as the Angus Burger, but these are just incremental additions and do not have the breakout potential of McCafe. To keep up its growth, MCD will have to come up with a new trick to lure customers – as well as keep its varied clientele from jumping ship.

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