|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
McDonald’s Is Gearing Up to Provide a Yummy Menu to Its Investors
Posted by: abirk (IP Logged)
Date: March 12, 2014 10:25AM
McDonald's (MCD) franchises and operates in approximately 34,000 restaurants in 120 countries around the world. Recently, most of the company's growth efforts has been concentrated abroad, and international growth has been booming.
However, the company has the resources and innovative muscle to acclimate itself to the challenge. It now needs to exhibit the patience and determination to keep experimenting with its menu and alternative revenue streams to preserve its vaunted, decades-long success.
McDonald’s is a dividend rich company. The dividend has grown from $2.05 a share in 2009 to $3.12 for 2013, a CAGR of 11%. The payout ratio has crept up from 49% in 2009 to 56% (projected) in 2013, which still leaves the company plenty of room to grow their dividend.
It is one of the highest-yielding stocks in the sector, and its current dividend yield is close to 3.4%. The company has a long history of growing its quarterly dividend, and its annual dividend increase comes after the third quarter of the year. At the moment, the stock pays an annual dividend of $3.24, up from $3.04 for the last year. Due to the solid dividend yield, the stock has attracted a large number of investors over the last few years.
McDonald’s Corp. is partnering with Kraft Foods Group Inc. (KRFT). to sell McCafe packaged coffee in U.S. grocery stores in various test markets. The coffee will be sold this year in whole-bean, ground and single-cup formats for use in brewers such as Green Mountain Coffee Roasters Inc. (GMCR)'s Keurig machines.
McDonald’s has been selling its McCafe beverages in its restaurants for several years, an effort to compete with big java-selling chains such as Starbucks Corp (SBUX) and Dunkin’ Brands Group Inc. (DNKN). The move has been one of McDonald’s more successful initiatives in recent years.
Plans in India
MCD has a relatively small market in India, so the beef-centric fast-food chain plans to open vegetarian-only restaurants next year. This is a totally new strategy for the company, signaling a growing effort for expansion in India (where the majority of people don't eat beef). In October, Hardcastle Restaurants, the licensee for McDonald's in South and West India, announced the opening of the first McCafe in Mumbai.
As India has one of the youngest populations in the world, with nearly 65 percent of the population under 35 years of age, more young professionals are eating fast food in urban India. In Mumbai, nearly 40 per cent of the people eating out are young adults. This definitely goes in the company's favor.
As per recent findings, the Indian market for chain restaurants was an estimated $2.5 billion in 2013 and is expected to grow to $8 billion in 2020, driven by the growth of what is known as quick-service, or fast food, restaurants.
McDonald's is also venturing into the coffee market with the expansion of McCafe designed to appeal to coffee lovers with tight budgets, a common pattern in recessions.
McCafe is a great move by McDonald´s — it adds to profitability due to higher profit margins than the traditional fast food business, and it diversifies the company away from those fattening products with their negative health implications. McDonald's will certainly continue expanding in the coffee business, and its size and global presence makes it a company to watch out for.
There's a clear opportunity for McDonald's in the specialty beverage segment. In fact, the burger chain could see as much as $3 billion in incremental sales from this category, according to research from Morningstar. Not to mention, premium coffee drinks such as McDonald's McCafe Frappes pack higher profit margin than do burgers and fries. The company's McCafe concept has caught on in markets such as Australia and Europe
Stocks Discussed: MCD, GMCR, KRFT, SBUX, DNKN,