McDonald's (MCD) Great Company, Expensive Stock

McDonald’s (MCD) operates or licenses more than 32,800 fast food restaurants world wide. Over the past ten years, the company has grown profits at an 11% pace but dividends at 25% annualized while earning a 25%+ return on equity. Looking forward, the pace of advance of dividends should slow somewhat although earnings growth is expected to continue at an above average pace as a result of:

(1) ability to pass through higher prices

(2) global growth not only in the number of restaurants but also in same store sales,

(3) introduction of new higher margin products [McCafe Real Fruit Smoothies, Frappes, Angus snack wraps],

(4) a revitalization program aimed at increasing restaurant visits, growing brand loyalty and a new marketing campaign,

(5) a shift toward a greater percentage of franchised restaurants which will reduce capital requirements, improve cash flow and raise return on capital.


Negatives:

(1) rising commodity prices,

(2) a higher tax rate,

(3) increasing pre-opening expenses associated with a major expansion into China,

(4) intense competition,

(5) the potential impact on sales of continuing economic malaise.

MCD is rated A++ by Value Line, carries a 42% debt to equity ratio, has an ongoing stock repurchase program and its stock yields 3.0%.


Chart

Note: MCD stock made great progress off its March 2009 low, quickly surpassing the down trend off its August 2008 high (red line) and the November 2008 trading high (green line). Long term the stock is at the top end of its up trend (straight blue lines) and in the mid zone of its intermediate term up trend (purple lines). The wiggly blue line is on balance volume. The Dividend Growth and Aggressive Growth Portfolios both own 50% positions in MCD by virtue of having recently Sold one half of their holdings.




http://finance.yahoo.com/q?s=MCD
9/11


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