Major U.S. stock indices are hovering around breakeven today, as an absence of earnings or economic reports has given investors little reason to buy or sell. Near the end of trading today, the Dow Jones Industrial Average (^DJI +1.79%) is down just 0.02%, hurt by nearly a 1% decline at McDonald's (MCD +1.55%).
Buybacks and dividends can't cheer Mickey D's investors
The fast-food juggernaut today said it would return $18 billion-$20 billion to shareholders over the next three years in the form of dividends and share buybacks. Usually that kind of news has investors cheering, but the stock is down for good reason.
When companies can no longer find ways to invest in their businesses and grow organically they often turn to buybacks to increase earnings per share. That appears to be what McDonald's is doing.
The big problem for McDonald's is that same-store sales fell five straight months in the U.S. until coming in flat in April. Longer term, you can see a stagnation in growth over the last two years; this should be concerning to investors because the stock has followed sales.
MCD Total Return Price data by YCharts.
None of this is to say that McDonald's is a bad investment at the moment. Its dominant global footprint and ability to adapt to consumer changes ensures the Golden Arches will be around for decades to come. But expectations should be muted, and McDonald's stock should probably be seen as little more than a dividend play.
Growth has slowed at McDonald's and management is seeing more opportunities in buying stock than growing stores.
The company's days of big growth appear to be over, and McDonald's is turning to returning cash to shareholders rather than investing in the business. That may be the right move, but investors in public markets look for growth. That's why the stock is down today; but if you're looking for a dividend stock this could be a good opportunity to buy a company with a business that isn't going away anytime soon.
Stable dividends are a great way to beat the market and a good long-term investment strategy for those who want to collect income.
