If you live on planet Earth, chances are you'll visit a fast-food restaurant more than a few times a year -- perhaps even abusing them regularly. As healthy eating movements have spread in popularity, the menus of these fast-food giants have greatly expanded, making them even more accessible to a wider audience. With three behemoths in this sector, McDonald's (NYSE: MCD ) , Yum! Brands (NYSE: YUM ) , and Wendy's/Arby's (NYSE: WEN ) , I thought it'd be worthwhile to chew through some figures and see which is the potential best stock to own. Let the drive-thru war begin!
Margin consistency
It's not enough to just look at net margins; we need to look at how consistent these three companies are at maintaining them. Over the past five years, Wendy's/Arby's had the wildest swings, with margins ranging from -26.3% to 1.3%. Yum! Brands had the tightest margin range of 8.2% to 9.9% in that time span. Finally, McDonald's clocked in with the healthiest margins at 10.5% to 20.6%. Though I appreciate Yum!'s consistency, McDonalds' margins are consistently higher and thus it gets the point.
Dividend growth
Since all three drive-thru giants pay a dividend, what would be more beneficial is to see whether that dividend is growing. Over the past five years, McDonald's has shown compounded dividend growth of 26.8%, Yum! Brands has shown 32.6% growth, and Wendy's/Arby's actually had a 26.2% annualized dividend reduction. The point goes to Yum! Brands, and I'm almost tempted to give Wendy's/Arby's a negative point.
Workforce utilization
It's no secret that getting the most you can out of your employees will help maintain costs and boost margins. Looking at a company's revenue per employee ratio can help us determine if it's hiring wisely or has little control over its costs. Based on the most recent data, Yum! Brands clocks in at $31,846 per employee, Wendy's/Arby's is at $51,506, and McDonald's is at $61,906. McDonald's is clearly getting more bang for its buck out of its employees -- point for McDonald's.
Intangibles
This is the non-metric category. More opinionated than factual, this determines what sort of staying power the brand name has with consumers. Although all three spend big bucks on advertising, McDonald's is to fast food what apple pie is to America. Its brand name has better staying power than Yum! brands or Wendy's/Arby's, and it has more than 32,000 stores to thank for that image. Point to McDonald's.
Final tally
This exercise made me wonder if Wendy's/Arby's should even be a consideration for investors. Its erratic growth history and inconsistent dividend make it a passing thought from an investing perspective.
This leaves us with 1 point for Yum! Brands and 3 points for McDonalds. You might think I've been biased in my approach, but I was kind enough to leave out the fact that McDonald's also has a better free cash flow margin and almost double the operating margin when compared to Yum!.
I therefore crown McDonald's as the drive-thru champion -- please pull forward.
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