The stock market has had a tough year as inflation rages and a possible recession looms. When there is a bear market, typical investing advice is to rotate out of tech growth stocks into companies whose products people buy no matter what the economy or markets are doing. McDonald’s is one of the stocks that we generally expect to make money year in and year out. So, is McDonald’s a safe investment today with a recession around the corner and for the long term?
McDonald’s, the Pandemic and Inflation
The Covid pandemic hit the restaurant business hard as everyone was locked down. The only way McDonald’s and others could sell food was by takeout or delivery. McDonald’s sold for an all time high of $47.26 a share before the pandemic shutdowns. It fell to $38.88 before coming back. It sold for $75.44 at the start of 2022 until a falling market took all ships down and then sold for $56.76 by May. Today it sells for $66.89 as consumers are buying hamburger instead of steak to offset high food prices.
McDonald’s Looking Forward
McDonald’s is the world’s largest chain of restaurants. They instituted changes during the pandemic which helped then and are paying dividends now. Their best selling point is cheap food of reliable quality. Years ago they countered the argument that they alone were responsible for Americans getting fat by adding salads to their menu. During the pandemic McDonald’s learned how to use an app for ordering and offer order fulfillment by pick up, delivery, and drive-through. The delivery option, especially, is likely to drive sales for years as people who don’t want to stand in a long line for their food can get cheap food of reliable quality delivered to their home or office.
How McDonald’s Makes Money
McDonald’s is popular, attracts lots of customers, and sells lots of food but that is not where the company makes the most money. McDonald’s owns and leases their restaurant locations to franchisees. According to Investopedia, 93% of all McDonald’s locations across the world are franchises. Investors pay large markups on their leases because McDonald locations are optimal, and the businesses reliably make impressive sums of money. Looking to the future McDonald’s needs to maintain and grow its customer base in order to build more restaurants but the main profit driver for the company will be as a landlord!
Investing McDonald’s for the Dividends
McDonald’s is a dividend aristocrat. This means it is a large cap company in the S&P 500 that has paid steadily increasing dividends for more than twenty-five years. Its current dividend yield is 2.11%. McDonald’s is a money making machine that is likely to continue to make money and grow dividends into the future. Retirees looking for a reliable quarterly dividend check will get that with McDonalds. In four years McDonald’s will become a dividend king which means they will have paid steadily increasing dividends for fifty years or more. The company has increased its dividend every year since it started paying dividends in 1976.
When to Buy McDonald’s
McDonald’s is an investment for the long term. The company is too big to expect stellar growth. And it’s stock price does fluctuate with the market. Rather than trying to outguess the market the best choice for investing in a company like McDonald’s is to use a dollar cost averaging approach. And invest a fixed sum of money on a regular basis and use their dividend reinvestment plan to assure that, until you need the dividend checks, that they are routinely reinvested in more stock.
Is McDonald’s a Safe Investment? – SlideShare Version
Is McDonald’s a Safe Investment? – DOC