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
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.
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.
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.
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.
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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Fool contributor Sean Williams does not own shares in any companies mentioned in this article. He can thank his burger aficionado friend Ken for the inspiration in writing this article. You can follow him on CAPS under the screen name TMFUltraLong. The Fool owns shares of Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.