A Look At Recent Events At McDonald’s Corporation (MCD)?
McDonald’s Corporation (NYSE:MCD) has been in the midst of re-branding itself and carrying out an image makeover process for quite some time. The company has been initiating steps as part of that process and got feedback from the consumers as well. For instance, it has changed the breakfast menu that seemed to have attracted a lot of visitors. Also, after giving earnings a miss for at least three straight quarters, the company managed to come back to the winning post in the second quarter.
The chain of restaurant operator’s dividend has been one of the main features to hold the stock. The positive events happening recently might force some of the investors to think whether it is the right time to enter the counter or wait for more favorable trends to emerge before buying the stock. Let’s look at some of the facts before deciding which way to go.
For McDonald’s Corporation (NYSE:MCD), the most recent event is its decision to move towards cage-free eggs in North America. That was apparently due to the pressures exerted on it by animal rights advocates who wanted the company to be more humane. However, the move is part of re-positioning itself.
The company even dropped a poultry supplier last month following complaints of abuse on the farm in Tennessee. The chain of restaurants is also well aware that customers are more conscious about health and how the food is prepared before stepping into it. That was also acknowledged by the restaurant operator.
McDonald’s Corporation (NYSE:MCD)’s President for the United States region, Mike Andres, said that its customers are increasingly keen on knowing about their food, apart from where it comes from. Since 2011, the company is getting about 10% of egg supplies as cage-free in the Americas. The current plan is an extension of that and plans to reach 100% over a period of time. That will be significant for the egg industry too since others in the restaurant industry are also making a similar move.
Thumps Up For Breakfast
Another recent favorable event is the positive response to the breakfast menu. The company had rolled out a pilot plan of 24-hour breakfast offering. However, it was available only at selected locations. Its test run in a number of States in the Americas proved to be a favorable one. As a result, the chain is throwing open the facilities from October 6 onwards.
That will mean that customers reaching the store late will not be denied their breakfast or an egg McMuffin. McDonald’s Corporation (NYSE:MCD) has been receiving requests to have breakfast options all through the day for years now, however, the company was not convinced and felt that serving both breakfast and lunch would become a big operational challenge and avoided it. But the company cannot remain silent for too long a period as the customers started deserting the chain.
Those ultimately made the company decide to offer breakfast all through the day. Now, it is proving to be a big factor in its turnaround story. Yet, there are some skeptics expressing the opinion that, though the breakfast is popular, it is tough to draw big crowds in the afternoon. There were louder calls for breakfast because it was cheaper than the lunch menu.
Also, there is a feeling that it might encourage late risers and partiers to go for breakfast though it might face issues in attracting new customers. While these issues cannot be ruled out, the company would have got feedback from its customers and that will hold a key. So far, there has been no official information that the company will not serve lunch in the afternoon. Some customers started to feel that it was the right move to widen its consumers reach.
Concerns On Few Issues
While seeing the positive sides of McDonald’s Corporation (NYSE:MCD)’s turnaround tactics, some of the issues faced by the company cannot be ignored. For instance, almost all companies having a global presence are impacted by the strong Greenback. The chain will also be one among them. Though the company hedged a part of it in the second quarter, it still inflicted a loss for the year-to-date period. The company needs to focus on reducing the loss on forex by hedging currency as it did in the second quarter.
Similarly, the restaurant operator will struggle for revenue growth, as in the past, for some more quarters as the re-branding effect will take time to have some meaningful impact. After the second quarter results, the company announced positive same-store sales growth of 1.7% in August. At the global market, Japan demonstrated a growth of 2.6% in the same month. As far as the international market is concerned, McDonald’s Corporation (NYSE:MCD) has got tremendous opportunities and is not where it should have been. So far, it has only initiated small steps in the right direction.
Even if everything is removed from the perspective of growth or turn around, there is still an opportunity to earn from dividend yield. The chain has been paying a dividend since 1976 and boosted dividend for 38 straight years. That presents further growth opportunities. The latest dividend provided a yield of 3.5%, which was better than the five-year average yield of 3.20%.
McDonald’s Corporation (NYSE:MCD)’s dividend payout ratio was 79.0% in the most recent quarter. That was again higher than the five-year average payout ratio of 59.0%. Similarly, the average dividend growth rate for the last five years was 9.16%.
While concerns and issues are there in every industry, how it is managed or overcome is a matter to be taken into consideration. The restaurant was struggling to find the right course for some time. Now, it appears to have found what it needs, at least in satisfying the breakfast consumers. McDonald’s Corporation (NYSE:MCD)’s second quarter results might be a testimony to re-branding efforts yielding results. The company’s dividend growth is an additional factor and for that alone, one can buy the shares.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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