McDonald's Corporation (MCD). Below are some highlights from the above linked analysis:
Company Description: McDonald's Corporation is the largest fast-food restaurant company in the world, with nearly 34,500 restaurants in 119 countries.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
MCD is trading at a premium to all four valuations above. The stock is trading at a slight premium to its calculated fair value of $96.94. MCD did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
MCD earned one Star in this section for 3.) above. MCD earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments for 37 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
MCD earned a Star in this section for its NPV MMA Diff. of the $1,042. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as MCD has. If MCD grows its dividend at 7.3% per year, it will take 1 years to equal a MMA yielding an estimated 20-year average rate of 3.22%. MCD earned a check for the Key Metric 'Years to >MMA' since its 1 years is less than the 5 year target.
Memberships and Peers: MCD is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company’s peer group includes: Yum! Brands, Inc. (YUM) with a 1.8% yield, Starbucks Corp. (SBUX) with a 1.1% yield and The Wendy's Company (WEN) with a 2.8% yield.
Conclusion: MCD did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks MCD as a 2-Star Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $125.94 before MCD's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 37 years of consecutive dividend increases. At that price the stock would yield 2.5%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 4.8%. This dividend growth rate is lower than the 7.3% used in this analysis, thus providing a significant margin of safety. MCD has a risk rating of 1.25 which classifies it as a Low risk stock.
MCD is the dominant brand in the increasingly challenging global fast food industry. The company enjoys unrivaled scale advantages and international growth opportunities, particularly in Asia, the Middle East and Africa. The company should continue to grow its market share, albeit at a slower pace due to a sputtering global economy in Europe and Asia and the millennial generation who prefer healthier foods. MCD still has excellent long-term growth opportunities in China and other emerging markets.
The stock continues to be one of the largest positions in my dividend growth portfolio. Its strong price appreciation over the years has made it one of my top performing holdings. MCD is trading slightly above my calculated fair value price of $96.94 and its free cash flow payout and debt to total capital are slightly above my maximums. For now, I will wait for a more opportune time to add to my position.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in MCD (4.7% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
- Hormel Foods Corp. (HRL) Dividend Stock Analysis
- Hasbro, Inc. (HAS) Dividend Stock Analysis
- Nucor Corporation (NUE) Dividend Stock Analysis
- The Clorox Company (CLX) Dividend Stock Analysis
- More Stock Analysis
Tags: [MCD] [YUM] [SBUX] [WEN]
Popular Posts - Last 7 days
Linked here is a detailed quantitative analysis of Target Corporation (TGT). Below are some highlights from the above linked analysis: Co...
Any income investor will tell you that it is important for a company to sustain its dividend . However, as an investor in dividend growth st...
Has someone near and dear to you responded with a 'I was only trying to help' after royally messing something up? Have you ever tink...
Linked here is a detailed quantitative analysis of Omega Healthcare Investors, Inc. (OHI). Below are some highlights from the above linked ...
Each Sunday I highlight any notable articles that I came across over the past week. Though I may not always agree with each of the articles ...
Linked here is a detailed quantitative analysis of Pfizer Inc. (PFE). Below are some highlights from the above linked analysis: Company ...
Like many that came before me, I am on a journey to construct a portfolio that will provide me... Dividends 4 Life
Monday, October 31, 2011 will mark my fourth full year of writing as Dividends4Life . It is hard to believe another year has passed. Like th...
Over time we tend grow fond of people we have a relationship with. Sometimes we grow to love them like a brother or sister; sometimes even m...
Presented below are are my Dividend Growth Stocks portfolio holdings. This is not a recommendation to buy these securities. I have classifi...