If you’ve been following McDonald’s Corporation (MCD), you’ve probably heard repeatedly that the company has been going through a rough patch over the last few years.
MCD stock failed to move with the times, and as such, lost touch with consumers. For instance, as emphasis grew on healthy eating, consumers began changing their eating habits gradually, a trend that has dented the fast-food business. And MCD stock has been at the receiving end of this unfavorable trend.
That shift in eating habits can be seen clearly in that MCD stock has seen about a 5% increase in revenue over the last five years, with Yum! Brands, Inc. (YUM) seeing 15.5% increase and Wendys Co (WEN) doing worse with about a 21% revenue decline over the past five years. These are considered the “less-healthy” options.
On the other hand, a healthier option in Chipotle Mexican Grill, Inc. (CMG) has seen a 145% increase in revenue.
While it’s understandable that MCD stock can’t feasibly grow at Chipotle’s rate because it makes significantly more revenue, its growth rate in the previous five-year period between 2006 and 2010 was about 26%. In fact, Wendy’s revenue grew by more than 200% during that period. So you get the idea.
However, McDonald’s seems to be turning things around since the middle of last year. Based on that, here are three things to like about MCD stock.
McDonald’s Is Redeeming Market Share
After taking the wheel at MCD in March 2015, CEO Steve Easterbrook announced his turnaround plan for MCD stock. While there’s still a lot of work left to be done, things have been going pretty much according to plan. As such, MCD stock is gradually winning back customers. Here’s proof.
First, MCD simplified its menu in a bid to improve the customer relationship. It then brought an improved burger in the Steakhouse Sirloin Third Pounder to menu, as well as becoming “healthier” by not using chicken with antibiotics important to human health in the U.S.
The one change that’s actually been in most headlines is its decision to introduce all-day breakfast.
An NPD group study said this has done a bit in helping McDonald’s win customers back. In fact, one-third of customers who bought breakfasts during nontraditional breakfast hours were new customers, according to the report.
MCD went on to say, “In the U.S., fourth quarter comparable sales increased 5.7%, benefiting from the October launch of All Day Breakfast” in its fourth-quarter and fiscal-year-2015 earnings press release.
This offers hope that things will get better with MCD stock.
In Love With MCD Stock Shareholders
In 2014, MCD stock announced that it planned to return up to $20 billion in dividends and share buybacks to investors by 2016. McDonald’s has stayed true to this. As of the end of 2015, MCD stock had returned $15.8 billion to investors in dividends and share repurchase.
This reminds us of just how awesome McDonald’s has been when it comes to making shareholders happy. It has paid dividends consistently since 1976, even increasing it on a consistent basis. As recent as September, MCD stock added 5% to its dividend payout.
MCD stock currently yields a respectable 3% on dividend.
McDonald’s has also been doing a great job cutting down its expenses. MCD stock has a higher expenses bill than many of its competitors. The trouble it has had in recent times has meant that it had to reduce its expenses.
Between 2010 and 2013, McDonalds saw about a 19% increase in its total expenses. However, since the start of 2014, its total expenses have dropped by 5%. Note that this takes into account cost of goods sold, administrative expenses, tax, depreciation and similar items.
Like most matured companies, McDonald’s doesn’t present many opportunities for quick growth. In its case, growth will be spread out over several years.
By implication, it is best fit for income seekers who are, in most cases, long-term oriented.
However, you should note that the turnaround is far from complete.
As of this writing, Craig Adeyjanu did not hold a position in any of the aforementioned securities.
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