With the overall market tumbling again today, it appears investors aren’t lovin’ McDonald’s
It shouldn’t be a huge surprise that McDonald’s North American comparable-store sales increased by 4.7%, while Darden Restaurants
McDonald’s earnings per share from continuing operations increased by 27% for the quarter, helped out by currency translation gains and the company’s $1 billion worth of stock repurchases. And speaking of returning capital to shareholders, the company increased its cash dividend by 33%, which now delivers an annual yield of 3.6%.
McDonald’s has done a reasonable job of keeping costs in check with inflation and commodity price increases, delivering operating and SG&A (selling, general, and administrative) cost increases of a meager 3% and 2%, respectively.
So why aren’t investors sweeping in to pick up McDonald’s at a trailing price-to-earnings ratio of less than 14?
Probably for the same reason that the Dow is hovering around a 3% loss today: People are afraid of what’s coming. But, for long-term investors, this looks like an opportune time to get into a blue-chip stock with stellar performance, even during a widespread financial crisis.
There is no reason to think that Joe Six-Pack will stop buying $0.99 Double Cheeseburgers, even if we are in a recession, and perhaps there are reasons to think this inexpensive meal item will gain popularity. And even if you’re afraid of short-term prospects, the 3.6% dividend sweetens the pot through the tough times. At this price, McDonald’s is a great defensive play in this skittish market.