Stay Defensive with McDonald’s Stock as Fast-Food Giant Courts Customers

Call it a safety stock, or an all-weather investment. Through thick and thin, McDonald’s (NYSE:MCD) provides comfort food – and comfort when markets turn sour – as MCD stock is a dividend yielder that’s appropriate for just about any portfolio.

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Sometimes people feel that the markets are due for a correction, and they’re looking for companies to invest in as a defensive play.

McDonald’s fits that description perfectly. At the same time, however, this fast-food mainstay is surprisingly forward-thinking in its business strategy.

And so, whether you’re a growth-focused investor or you prefer to play it safe – or maybe a little bit of both – MCD stock is quite possibly the best choice on the menu.

A Closer Look at MCD Stock

Let’s start with the basics. Not matter how you slice it, McDonald’s is a bona fide dividend king.

The company paid its first dividend way back in 1976. And, McDonald’s has increased its dividend payouts every year since.

Currently, MCD stock offers a forward annual dividend yield of 2.21%.

I wouldn’t go so far as to call the stock recession-proof. Yet, the dividend distributions could provide a cushion in tough times.

Now, let’s apply a traditional valuation metric to MCD stock. On a trailing 12-month basis, its price-to-earnings ratio is 34.2.

That’s not super-cheap, but it’s also not extremely expensive, either. I’ll admit that at $235 and change (as of July 9), McDonald’s shares aren’t the most affordable assets on the market.

But then, as the old saying goes, “You get what you pay for.” Oftentimes quality costs more, and MCD stock’s price tag is justified by the pedigree, comfort and trust that the brand carries.

Fostering Loyalty, Digitally

In the wake of the Covid-19 pandemic, fast-food chains must do what it takes to keep the customers coming back.

For McDonald’s, this means implementing MyMcDonald’s Rewards, the company’s loyalty program, with a digital angle.

Reportedly, MyMcDonald’s Rewards allows subscribers on its app to earn points, which they can redeem on burgers and fries (though this program excludes delivery).

CEO Chris Kempczinski said that McDonald’s expects to have rolled out the loyalty program in the company’s six biggest markets by the end of 2022.

Also on the topic of digital outreach, McDonald’s is continuing to roll out its mobile order and pay functionalities.

This is a sensible strategy as today’s fast-food customers have typically come to expect service that’s fast and mobile-friendly.

And apparently, they’re not quite ready to come into the restaurant yet. Believe it or not, drive-thru service now accounts for approximately 90% of McDonald’s sales.

But that shouldn’t be a problem, as customers can easily place their orders on their phones, claim their rewards, drive up and get a (hopefully) hot meal on the go.

Taking Care of People

So, here’s an issue that might be a little bit controversial. I’ll just present the facts, and let you decide what’s right and what’s not.

McDonald’s, reportedly, is increasing the minimum wage for more than 36,500 of the company’s employees by around 10%.

According to the company, the pay will range from $11 to $15 per hour for entry-level employees, and $15 to $20 for managers.

McDonald apparently has stated that the company intends to hire 10,000 new employees within the next three months.

So, the pay hikes could have an impact on the company’s bottom line.

On the other hand, the pay raises could provide benefits from a public-relations perspective.

At least, that seems to be the angle that McDonald’s USA President Joe Erlinger is taking.

“Our first value is taking care of our people,” Erlinger was quoted as saying. “These actions further our commitment to offering one of the leading pay and benefits packages in the industry.”

It’s interesting to consider whether the McDonald’s pay raises will have a lasting ripple effect throughout the fast-food industry. Only time will tell, I suppose.

The Bottom Line

So, there you have it. A dividend aristocrat that’s not rock-bottom cheap, but is about as solid a defensive investment as you’ll find.

Maybe you agree with what McDonald’s is doing, or maybe you don’t.

Either way, we should all be able to set our differences aside, enjoy some of those legendary McDonald’s fries, and hold our MCD stock shares for a decade or two.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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