McDonalds – Why McDonald’s Stock is Appetizing at Current Levels
There’s something to be said about adding an iconic brand name company like McDonald’s (NYSE:MCD) to your long-term investment portfolio. It’s one of those businesses that offer an instantly recognizable and familiar experience for its customers, regardless of which one of the 38,695 restaurant locations that they are visiting. As the largest fast-food chain in the world, McDonald’s offers relatively stable earnings, defensive qualities, and the potential for sales growth over the years. With that said, the stock has been an underperformer as of late as the company continues to deal with the impacts of the global pandemic.
Although McDonald’s stock hasn’t been very exciting in recent months, there are a few great reasons to consider adding shares at this time. With an average analyst stock price target of $242, there’s a good chance that shares are undervalued at current price levels. Investors should also be focused on owning a company that can handle a short-term period of weak restaurant industry sales better than competitors. Keep reading below to learn a few more reasons why McDonald’s stock is appetizing at current levels.
Strong Corporate Strategy – Digital Initiatives Are Intriguing
There’s a lot to like about McDonald’s corporate strategy and how the company continuously focuses on customer-centric initiatives to drive growth. For example, you might have noticed that many of the McDonald’s locations are being renovated to feature a more modern experience. This is part of the company’s “Experience of the Future” strategy that is intended to transform the customer experience at locations and enhance the brand. Adding things like digital self-order kiosks, digital menu boards, and designated parking spots for curbside pick-up are all examples of how McDonald’s management is thinking about how to keep up with changes in consumer preferences.
Perhaps what is most intriguing about the company’s corporate strategy at this time are its digital initiatives. We mentioned the digital kiosks and menu boards, which are the result of the company’s acquisition of Dynamic Yield back in 2019, which is a leader in personalization and decision logic technology. The kiosks are interesting as McDonald’s has stated that they are resulting in additional sales without additional labor costs. There’s also a loyalty program being rolled out that will reward customers for placing more orders digitally. Finally, investors should be attracted to the company’s efforts in launching a mobile ordering application and expanding its delivery services. With the average delivery order about twice as big as the normal order, these are exactly the types of moves that long-term investors should be attracted to.
Recovery Is Coming, It’s Just a Matter of When
The pandemic has negatively impacted McDonald’s sales, and in 2020 the company reported a 7.7% year-over-year decline in global comparable sales along with a year-over-year revenue decrease of 10%. However, it’s fair to assume that a recovery in sales is coming as the U.S. and other countries get the virus under control. Things are already looking up based on the company’s last earnings report, as in Q4 the company delivered its strongest quarter of the year with Global Comparable Sales improving and U.S. same-store sales increasing by 5.5%.
Revenue growth in 2021 is almost a foregone conclusion and the company has done a lot to lessen the blow of the pandemic with investments in the drive-thru and delivery options. The company has drive-thru options in 65% of global stores and has enabled delivery in 75% of global stores at this time. McDonald’s is also spending big on marketing efforts and introducing fresh menu options including a new line of chicken sandwiches and an all-day breakfast menu. These are good examples of ways that McDonald’s can continue generating sales regardless of how long the full recovery will take.
Attractive for Dividend Investors
McDonald’s stock has long been a favorite for retirees looking for income and dividend growth investors. That’s because the company has increased its dividend payout for 45 consecutive years. The 3-year dividend growth rate (CAGR) for McDonald’s stock is 9.21%, which is a testament to the company’s commitment to rewarding long-term shareholders. The stock currently offers investors a dividend yield of 2.43%, which is a nice bonus considering the growth initiatives mentioned above.
Another reason the stock is attractive for dividend investors is the fact that the McDonald’s brand and business model will hold up well regardless of economic conditions. That means the risk of a dividend cut is very low and the stock price won’t be as volatile if the market takes a sharp downturn. The bottom line is that McDonald’s is one of the best restaurant stocks to own at this time and is a great option for dividend investors that want to own one of the most recognizable brands in the world.
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