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Why It’s Time to Buy McDonald’s Stock Again

McDonald’s isn’t the dominant growth story it once was. But McDonald’s stock continues to outperform, and is coming off an impressive correction-bucking stretch.

You don’t hear much about McDonald’s (MCD) stock these days. It’s not as exciting as younger, faster-growing fast food stocks like Shake Shack (SHAK) or a recovering one like Chipotle (CMG). But McDonald’s stock continues to consistently outpace the market while remaining a reliable dividend grower.

McDonald’s Stock: Slow but Steady Growth

How consistent has McDonald’s stock been? It’s up 9% over the last year (vs. a 16% decline in the S&P), up 62% in the last five years and 214% in the last decade. Now, that’s not setting the world on fire, but McDonald’s is beating the S&P 500 over all three time periods. However, when you sprinkle in the 2.2% dividend yield – better than the 1.8% average dividend yield for the S&P 500 – the combination of reliable income and consistent returns makes MCD stock more appetizing.

And now is a good time to buy. Why? Because the company is on track for 14% sales growth this year, and yet the stock trades at a more than palatable 26.6 times forward earnings – well below industry peers CMG (forward P/E of 35) and SHAK (an astronomical 2,000 times forward earnings).

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Meanwhile, MCD stock remains a Dividend Aristocrat; the company raised its dividend yet again for December, up to $1.52 per share from the previous $1.38 quarterly payout. It’s the 45th straight year the company has raised its dividend payout.

As you can see in the chart below, the stock suffered a bout of selling pressure in March given the company’s exposure in Russia (for which the company realized a $1.2 billion loss).

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After a quick reversal, the stock was once again dragged lower by the broader markets in May, likely attributable to anticipated weakness in consumer spending highlighted in Target’s (TGT) earnings miss.

Short-term investors would be best served waiting for evidence that the most recent breakout has legs or gradually entering a position through a dollar-cost-averaging strategy. But for long-term investors, the entry point may not matter much. McDonald’s stock has consistently held up well in market downtrends, even shaking off recent market weakness and holding near all-time highs.

MCD Still a Long-Term Play

While it’s long past peak perception, the profit and sales growth and rock-solid dividend continue to make MCD stock a good long-term investment for growth investors and income investors alike.

There are fast food stocks that have been growing much faster (no pun intended), but none of them offer McDonald’s combination of steady returns and yield. If you don’t already own this reliable growth and income stock, now is as good a time as any to add MCD to your portfolio.

Do you have McDonald’s stock in your portfolio?

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*This post has been updated from an original version, published in 2018.

Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week.