McDonalds (MCD)

[Kerim]

Shawnjeffrey had the scoop over in the other McDonalds thread – MCD announced the Q4 dividend today at 81 cents, which is up from 77 cents in recent quarters. But I thought this would be a good moment to start a new thread on MCD with current thoughts on MCD's future.

I think it is an ok raise, but not great. When you compare 81 to 77 cents, it does feel like a pretty small 5 percent raise, which was the widely reported number today. But the story is a little more rosy when you look at it year over year. In 2012, MCD paid out a total of $2.87. With this raise, the total payout per share in 2013 will be $3.12. By my math, that is a dividend raise of 8.71 percent year over year. Not too bad -- a lot better than 5 percent, anyway.

However, when looking forward to full year 2014, this year’s small-ish raise will result in a smaller year over year raise compared to 2013, unless the Q4 dividend next year (in 2014) is HUGE. Which doesn't feel too likely. Even if we got a very healthy 10 cent raise late in 2014, the dividend growth from 2013 to 2014 would still only be only about 7 percent.

So it looks like the dividend growth rate for MCD may be slowing down significantly here. Especially compared to the roughly 14 percent dividend growth rate we've enjoyed from MCD over the past 5 years and the 10 to 13 percent raises of the past few years.

It does make me a little less enthusiastic about acquiring shares with new money (other than reinvested dividends), but I still think that MCD is an excellent company with a safe future. And with this raise, at today's close you're getting a yield slightly over 3.25 percent to hold one of the biggest and best run global companies there is.

Thoughts?

[Horace Cugle]

I was looking for an 8% raise so I'm a little disappointed but I might have set my hopes too high. I know they have struggled this year so maybe 5% is not totally unexpected.

Still MCD is an excellent company but 3.3% yield and 5% DG is borderline mediocre and I doubt I'll be adding any new shares unless it gets cheap. At $92.50 it would yield 3.5% and at $81 yield 4%.

OTOH you have to think a great company like MCD could pick the DGR back up if things get better. From 2000 to 2002 the dividend went from $0.215 to $0.235 but was $2.05 just 7 years later. Payout ratio is around 55% so maybe good times again if things pick up steam overseas. For now though I have it marked down as 5% DGR because that's the last thing it did.

[EricL]

Disappointed with only a 5% raise, but I won't be selling.

I will continue to reinvest dividends but won't be buying any more unless the outlook changes. MCD deserves the benefit of the doubt in the short run given their recent track record, but the leash has been shortened!

[ChadR]

I was also disappointed in the 5% raise. Like Horace, I was expecting a raise to possibly $0.84. I'll keep reinvesting my dividends, but for the time being no new money. Though if it drops to the mid to low $80s, I might have to back to truck up and start loading up on the stock again. I won't lose faith in the because even the best stocks have periods of stagnation before a nice run up.

[TomK]

(09-19-2013, 08:46 AM)ChadR Wrote: I was also disappointed in the 5% raise. Like Horace, I was expecting a raise to possibly $0.84. I'll keep reinvesting my dividends, but for the time being no new money. Though if it drops to the mid to low $80s, I might have to back to truck up and start loading up on the stock again. I won't lose faith in the because even the best stocks have periods of stagnation before a nice run up.

This captures my thoughts almost exactly. These are looooooong term relationships we're forming with these companies. And they go through long (sometimes years long) cycles of over-performance, under-performance, and "normal" performance. With a great company (great products, brands, moat, history, commitment to dividend, etc.), patience is critical, and loading up on shares during the under-performing years (assuming the stock price reflects the under-performance) can lead to outsized long-term rewards when the cycles turn again in the company's favor.

[Shawnjeffrey]

It's my hope that the disappointment in the raise pushes the stock down a bit. I'd like to buy more if I could get some cheaply.

[Horace Cugle]

Chad that pretty much sums it up for me too. I'm going to hang on to my shares. If the stock traded between $90-$100 for the next couple of years with 5% DG, I could live with reinvesting into a somewhat flat share price. But after that I'd want to see some improvement in the DGR.

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If you own KO, is anyone concerned they might come in with a less than exciting raise? Their last raise was 9.8% and the next is due in February. What would you think if they raised it 5%?

[KenBob]

For many years the dividend has been increasing dividends at a rate that increased its payout ratio. Now they have reached a typical mature payout ratio, so the dividend growth rate should reflect the earnings growth rate.

[EricL]

(09-22-2013, 03:10 PM)KenBob Wrote: For many years the dividend has been increasing dividends at a rate that increased its payout ratio. Now they have reached a typical mature payout ratio, so the dividend growth rate should reflect the earnings growth rate.

That is a good point, you could be correct in your theory.

[Kerim]

Here's a short and interesting article about whether McDonalds is going to suffer as people migrate from "fast food" to "fast casual" food. I think they'll be fine, but always a good idea to keep an eye on macro trends that could affect their future prospects.

[NilesMike]

Any renewed interest with the recent selloff. I'm tempted with the 3.3% yield, near the top of its 5 year range.

Maybe put a limit order in at 95.50 and see if it retests today's low?

Thoughts?

[TomK]

MCD is a great long-term holding. If there is a place for it in your portfolio, and if you a planning on holding it for a long time, then I definitely would not worry about about a few dimes per share -- just pull the trigger with a market order.

As to whether this is a good price, I lean towards yes, but it is hard to say. As you point out, the current yield is better than it has been in quite a while, which can indicate an excellent entry point. But the share price has languished some lately, and may give you even better opportunities. My own guess -- nothing more -- is that MCD is going to trade sideways for another 6 months or year before breaking upwards into new territory again. If that guess proves right, you may see some better entry points.

Maybe buy a partial allocation now (say, half), and keep the other half dry while you keep an eye on the price?