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McDonald's Can't Save the Dow As China Fears Spook Market

By John Divine – Mar 11, 2014 at 12:18PM

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J.C. Penney stock continues to surge, casino bigshot Melco Crown slips

Logging a second straight day of declines, the stock market continued to cool down on Tuesday, as all ten sectors finished in the red. Wall Street still isn't quite sure what to make of China's trade numbers for February, which saw exports in the world's second-largest economy crater more than 18% without warning. Caution and patience are an investor's best friend right now; it's not wise to jump to sweeping macroeconomic conclusions based on a single data point. That said, Wall Street buddied up with Caution today, sending the Dow Jones Industrial Average (^DJI 0.41%) down 67 points, or 0.4%, to end at 16,351.

McDonald's (MCD 0.63%) shareholders don't mind when Wall Street gets cautious, because McDonald's itself isn't the biggest gambler from a financial perspective. In fact, those world-famous golden arches bring in such consistent revenue that the stock currently pays a 3.1% annual dividend -- a dividend that could actually increase soon, according to the company's CFO. McDonald's shares finished as the Dow's top performer -- surging 3.8% -- after CFO Pete Bensen hinted at increasing the company's leverage to return shareholder capital. This could either happen by hiking the aforementioned 3.1% dividend or buying back shares; either way, shareholders benefit. 

McDonald's shareholders are lucky to be able to reap rewards through either dividends or share appreciation. It's a luxury companies can offer investors if they enjoy predictable, robust financial results, low debt, and a pile of cash. Despite its recent rally on Wall Street -- the stock was up another 3% today -- these are luxuries J.C. Penney (JCPN.Q) doesn't have. It's no accident the company doesn't offer a dividend. While J.C. Penney's same-store sales rose in the fourth quarter, its turnaround efforts are far from complete; the department store is still loaded with debt, and the recent rally has been largely driven by lower than expected losses in the fourth quarter. With the top-line still trending lower, J.C. Penney is only hinting at a turnaround -- not quite turning around, per se -- as far as I'm concerned. 

Is the phrase "It's a good time to be invested in gambling" an oxymoron? I'm not sure, and I don't really care, because I'm sticking to it, especially when we're talking gambling in Macau. Melco Crown Entertainment (MLCO 2.04%), which is hyper-exposed to China's gambling haven Macau, is rumored to have actually given the region its name, calling the East's Las Vegas "my cow," because it functions like a cash cow for Melco. While this is not true -- Macau's actual etymology is not gambling-related -- the territory's value to Melco Crown shareholders remains as straightforward as ever. That said, my colleague Travis Hoium fears the stock might be a little pricey right now, and has other recommendations for playing Macau's boom. Shares fell 3.3% today.

John Divine has long January 2015 $10 calls on J.C. Penney. You can follow him on Twitter, @divinebizkid, and on Motley Fool CAPS, @TMFDivine.

The Motley Fool recommends and owns shares of McDonald's. We Fools don't 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.

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