Is McDonald’s ($MCD) A Value Beyond $100?

By: ispeculatornew
Date posted: 08.21.2013 (3:00 am) | Write a Comment  (2 Comments)

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mcdAs many of you know, I’m seriously considering dumping my shares of Intel Corp (INTC) and while getting a similar tech stock would be ideal, there are not that many candidates so it’s much more likely that I’ll end up adding another type of company. Because of the existing companies that I hold, I’ll likely be staying away from energy companies and also try to go for ones that have international exposure. For that reason, I thought I’d take the time to look at McDonald’s (MCD), one of the more known companies in the world. MCD has been paying dividends for decades and as I wrote in a recent newsletter, it’s among the top 25 dividend stocks most held by fund managers around the world.

Why go for MCD? While being a dividend aristocrat does not hurt, it’s not the main reason as I’ve explained in the past. Many dividend aristocrats hesitate to increase their dividend payouts quickly because they fear they’ll be unable to keep increasing them every year. In an ideal world, I’d go for stocks that respect my 7-7-7 rule (7% 5 year average increase in sales, earnings per share and dividends) but those are not necessarily easy to find. I somehow doubt that a company the size of MCD will be able to increase sales by 7% per year or more. But you never know. Let’s find out by looking at the top 20 things I look at when judging dividend stocks:

Dividend Metrics


MCD Dividend Chart

MCD Dividend data by YCharts

No doubt, these numbers are very strong and much better than I expected. Not only has MCD been steady in increasing dividends but those have been growing fairly quickly.

Company Metrics


While growth in sales and earnings are smaller than I’d hope, they do remain very strong. I’m not sure a 7%+ dividend growth is sustainable long term but a 3-5% certainly seems possible. The P/E ratio is very slightly higher than I’d wish given the growth but MCD is so steady and diversified that it might be enough to offset those.

Stock Metrics


Industry Metrics

While McDonald’s continues to face competition all around the world, it has such a strong and established brand that I don’t really see major threats. It serves a strong and growing market and has been able to position itself very well to face a consumer (in many of its bigger markets) that is looking for more healthy, higher quality food. There will continue to be threats and changes in the market but I certainly think McDonald’s will continue to adapt itself very well to such changes.

Disclosure: No position on MCD, long INTC

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  1. Comment by The Dividend Engineer — August 21, 2013 @ 6:48 am

    MCD would probably be a good addition to your portfolio but at 100$, I think it’s very fairly valued. Future growth is likely to be limited (the 3 to 5% you suggested is plausible) and dividend growth will probably be more in line with earnings growth in the future since the payout ratio is already a bit high.

    Also, I wouldn’t count INTC out yet. INTC has little debt, a pile of cash on hand, and boatloads of skilled engineers. Though it clearly missed the mobile devices chip market, it still has the resources to develop new chips and make a comeback.

    In my view, INTC has more growth potential than MCD.

  2. Comment by Derek - — August 27, 2013 @ 8:05 am

    Haha, we’re in the same boat. I have a bunch of INTC shares that I picked up in November that were up about 25% – now about 15%.

    I have a limit order in to buy MCD at ~$77 – but I am unsure if it will ever get that low again. I would definitely not buy anywhere above $95!!

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