McDonald’s Corporation: Why Traders Are Going Crazy Over MCD Stock
September 29, 2016
McDonald’s Corporation (NYSE:MCD) stock rose one percent in pre-market trading Thursday after the company announced a 5.6% dividend increase.
Going forward, McDonald’s will pay an annualized dividend of $3.76 per share. Based on its September 28 closing price of $115.18 per share, the forward dividend yield on MCD stock rises to 3.3%, which is still well above the average dividend yield on the S&P 500. McDonald’s has delivered a dividend increase each year since its initial public offering in 1976 and is a “dividend aristocrat.” (Source: “McDonald’s Raises Quarterly Cash Dividend By 6%,” McDonald’s Corporation, September 29, 2016.)
The past year has not been an easy one for McDonald’s. The company has suffered a drop in sales and earnings per share (EPS) over the past few years. Fortunately for the company, its strategic initiatives are finally showing some positive results in 2016.
After a tough year, McDonald’s eyes renewed growth thanks to new menu offerings. The fast food industry is more competitive than ever, in part because U.S. consumers are taking a closer look at what they are eating and drinking. Fast food is losing market share to “fast-casual” competitors that offer healthier ingredients, and this emerging consumer trend is weighing on fast food giant McDonald’s.
Last year, McDonald’s total revenue and EPS declined 7.4% and 0.5%, respectively, from the previous year. Looking back further, since hitting peak levels in 2013, McDonald’s sales have dropped 9.6%, while its EPS dropped in that time. (Source: “Form 10K,” McDonald’s Corporation, last accessed September 29, 2016.)
The good news is that McDonald’s has shaken up its menu to get customers back in stores. First, McDonald’s began all-day breakfast, which has proven to be a hit with customers. Then, McDonald’s employed its “McPick 2” offering.
These efforts have worked so far in 2016. Comparable-restaurant sales, which measures sales at locations open at least one year, rose 3.1% in the second quarter, reflecting growth across all of the company’s geographic segments. The company has successfully cut costs as well, which led to 20% earnings growth over the first half of the year. (Source: McDonald’s Second Quarter Earnings, McDonald’s Investor Relations, July 26, 2016.)
MCD stock investors will want to monitor the company to make sure the turnaround remains on track. But for the time being, the dividend increase is satisfying for owners of MCD stock.
