McDonalds Stock: Is it recession proof?
 

Kenneth J. Dickson

McDonalds Stock: Is it recession proof?

Continuing the series in posts on Dow Jones companies, today we're looking at McDonalds stock.It's currently trading at $75 and change and has risen $20 since 2009. It's been growing its dividend for YEARS, and is quite impressive as a company especially in its recent rebound.

McDonald's Corp (NYSE: MCD)

The first burgers

Founded in 1940 by brothers Dick and Mac McDonald, its original logo was a cook in a chef’s hat. Ray Kroc was the first franchisee and had an ambitious vision of where he wanted the chain to go. Buying out the brothers’ interest in the restaurant, he began to expand it and by 1965 it was listed on the stock exchange.

Kroc’s vision eventually took the chain to the international market and followed societal changes, introducing PlayPlace in 1987 so that frazzled parents could eat their meals in peace. McDonald’s has always strived to change with the times and has recently introduced Wi-Fi connections for busy people and even more natural settings with lounging areas and fireplaces in some areas.

Adapting in adversity

McDonald’s has been a success not because of the quality of their food but their adaptability and their pricing. When the company was criticized for contributing to obesity, it reacted by adding salads and wraps to the menu. PlayPlace was, in some areas, supplemented or replaced with stationary bikes attached to video games and basketball hoops, dance pads and other physical activities.

When the recent trend of designer coffees began to cut into McDonald’s sales, it responded in kind with lattes, espressos and other flavored varieties priced a bit more than one competitor and a bit less than another. With 47 million customers a day and a 95% profit margin, coffee now is a very important part of the business plan.

It's all between the buns

McDonald’s business plan is faultless; corporate revenue comes from the rent, royalties and fees paid by franchises as well as sales in the 15% of restaurants owned directly by the company. The corporation doesn’t sell food or materials to the restaurants, avoiding this expense, but supplies them through logistics operators. Low overhead means that more resources can go toward advertising and promotion.

With 31,000 restaurants in 119 countries and 1.5 million employees, McDonald’s advertising campaigns keep a steady flow of customers in the franchises. McDonald’s revenues grew 27% between 2004 and 2007. McDonald’s sales are increasing even as the economy slows down and the company shows signs of continued growth, and 2008 were even better.

Given the strength of its performance, the McDonalds stock could continue to grow and prosper as customers increasingly find it’s hard to go anywhere without seeing the “golden arches” logo whether you’re getting gas, shopping or just cruising the freeway.

Future Growth?

With growing markets, hungry customers, and a menu that is well localized throughout the world from curry burgers in India to vegetarian burgers in central London, McDonald's is poised to continue its expansion. Now do you think that dividend of 2.9% is looking juice? Well, consider this. Over 20 years, it's grown its dividend from 7 cents to $1.62. Impressive.

SST does not currently own this stock and soulfully wishes he'd bought that stock when he graduated from college! He is currently considering investing in some of the Dow Stocks especially with the current sale... and is waiting for an opportune entry point.
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