McDonald's Burns Naysayers

Anyone worried that McDonald's (NYSE: MCD  ) momentum was slowing will find plenty of reassurance in today's quarterly results.

The fast food chain's third-quarter net income rose by 6%, to $1.26 billion, or $1.15 per share. Revenue decreased by 4% (without currency effects, it would have risen by 2%) to $6.05 billion. Global comps increased by 3.8% -- rising 2.5% in the U.S., an impressive 5.8% in Europe, and 2.2% in the Asia/Pacific, Middle East, and Africa segment. The company credited its new Angus Third Pounders and McCafe espresso drinks for drumming up success in America.

As if that's not appetizing enough, McDonald's also boosted its quarterly cash dividend by 10% to $0.55 per share (or $2.20 annually), which goes into effect in the fourth quarter. McDonald's has been delivering both impressive operational growth and a tasty payout.

Stocks like McDonald's make a great case for buy-and-hold investing. The company has competed admirably against fast-food rivals such as Burger King (NYSE: BKC  ) , Yum! Brands (NYSE: YUM  ) , and Wendy's/Arby's (NYSE: WEN  ) , proving that it's a true leader in the fast-food space. And it's aggressively pursuing innovation, most recently via its new premium coffee offerings. In addition to luring new customers into Mickey D's restaurants, the McCafe line is a direct challenge to java purveyors such as Starbucks (Nasdaq: SBUX  ) .

McDonald's bargain-priced offerings give it an edge in difficult times, not unlike the advantage enjoyed by discount retail giant Wal-Mart Stores (NYSE: WMT  ) . Compare its shares to pricey restaurant stocks such as Cheesecake Factory (Nasdaq: CAKE  ) , which currently trades at 24 times trailing earnings. At about 15 times trailing earnings, McDonald's doesn't look unreasonably priced relative to its rivals, and its leadership position in fast food gives it an added edge over many others in the sector.

Last quarter, many investors seemed to choke on their Big Macs, but I still gave Mickey D's the thumbs-up for the long term. The market's been doing some odd things lately; many higher-risk stocks have rallied, becoming overpriced. But McDonald's, a well-run and venerated blue-chip that pays an increasing dividend, remains one of the safer bets in a crazy market. Bon appétit.

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Starbucks is a Motley Fool Stock Advisor recommendation. Wal-Mart is a Motley Fool Inside Value selection. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.


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