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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 perform well and is still a buy even near all-time highs.

"Astanbul, Turkey - March 16, 2013: Brand logos on computer screen, including Coca-Cola, Apple Computers, Shell, Ikea, Google, Mc Donalds, E-bay, Disney,  Microsoft, World Wildlife Fund,  Facebook, Twitter, Pepsi, BMW, Samsung, BBC, CNN, Intel, Red Bull, Master Card, Visa, LinkedIn, Nike, Starbucks, Johnson & Johnson and Ford. These are some of world's famous and powerful brands."

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). But McDonald’s stock continues to consistently perform well while remaining a reliable dividend grower. In fact, MCD shares are just shy of all-time highs…

McDonald’s Stock: Slow but Steady Growth

How consistent has McDonald’s stock been? It’s up 6.4% year to date (vs. a 19.1% return in the S&P), up 2.4% in the last year (13.8% for the S&P), 55% in the last five years, 186% in the last decade, and so on. Now, that’s not setting the world on fire, but McDonald’s is beating the S&P 500 over the last decade. However, when you sprinkle in the 2.4% dividend yield – better than the 1.6% 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 7.5% sales growth this year, and yet the stock trades at a palatable 22.6 times forward earnings – well below industry peers CMG (forward P/E of 41.8) and SHAK (an astronomical 129.9 times forward earnings).


Meanwhile, MCD stock remains a Dividend Aristocrat; the company raised its dividend yet again at the end of last year, 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.

And after a strong first half of the year gave way to a weak fall, shares are once again trading near all-time highs and above key moving averages.


Having reached the nadir for the year in October, this looks like a good entry point if you’re a momentum investor. Plus, MCD has consistently held up well in market downtrends. But McDonald’s stock is a long-term holding, so the entry point doesn’t matter much. It’s the kind of stock you buy, enroll in the DRIP (dividend reinvestment program), and let it marinate in your portfolio for the next 10 years. If you had invested $10,000 in McDonald’s stock 10 years ago and reinvested the dividends, you’d have $37,248 today!

MCD Still a Long-Term Play

McDonald’s doesn’t change much. Yeah, they do some window dressing here and there – this year they added more Big Mac sauce and started using softer hamburger buns. But 10 years from now, you’ll still be able to do what you did in 2013, 2003, 1993 and 1983: pull up to a McDonald’s drive-through, order a Big Mac, Quarter Pounder or six-piece Chicken McNuggets with fries and a Coke, and drive away happy (if not exactly healthy).

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.

And as CEO Chris Kempczinski said in a recent earnings call, “We perform well in good times and in bad.” MCD is one of the market’s signature all-weather stocks – and yet it keeps beating the market over almost any measurable period.

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?


*This post is periodically updated to reflect market conditions.

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