One of our more popular holdings, McDonald’s (MCD) has come under a bit of pressure lately – both in the media and on Wall Street. After reaching a high near $102 a share in May of this year the stock price has dropped to below $90 a share in October. The media has pounded their menu saying that the younger millennials are avoiding MCD for healthier alternatives. And yet I’ve doggedly held their stock in many client accounts.
While the jury is still out, we are starting to see the reasons for holding and our continued purchase of MCD. First, MCD is held in our Dividend and Growth strategy accounts. Their dividend has been above 3% even at its peak price. More importantly the dividend has been increased for 38 consecutive years and in this area MCD did not disappoint – they announced a 5% dividend increase payable to shareholders at the end of November. This brings their current yield to 3.59% as of market price on 11/6/2014 and annualizing the dividend.
Part II of my thesis is that McDonalds is still a cherry job for anyone in advertising. Their contract has to be one of the largest in the advertising world. Money buys the best and the brightest. MCD will find a way to come back into the good graces of the fast food consuming public. Survey’s are already showing some in roads from campaigns such as this social media campaign that coincides with the relaunch of the McRib sandwich.
MCD is a great example of an investing concept I will come back to in future posts: the difference between buying a company and buying a stock. Stock buyers look for price appreciation in the near term. The media is created for stock traders. Investors like the Warren Buffets of the world buy companies. Companies generate cash flow that is unaffected by stock price that allows them toraise dividends by 5% even when their stock price slides by 12%.
While I’m not happy with the stock, I am happy owning the company, mainly because they pay my clients a 3.59% dividend while we wait for their stock to turn around. And next year we will likely get another raise.