McDonald’s Corp. (MCD, Financial) performed very well in 2015, as the stock was up approximately 25%. Its new CEO Steve Easterbrook has successfully changed the company’s fortune by making several innovative and smart moves such as the introduction of all-day breakfast and attentive promotions to progressively enhance sales.
In the recently reported quarter, the company shared earnings per share of $1.50, outperforming the analyst estimates by 1 cent, whereas revenue came in at $6.42 billion, $140 million greater than the consensus estimates. That figure represents a drop of 3% year over year including the foreign currency movements.
On the other hand, the company’s same-store sales surged 3.5% around the globe and 1.3% in the U.S. It is true that domestic growth does not look striking, but keeping in mind the restaurant industry overall is slothful and the company reports the fifth straight quarter presenting growth after two years of disappointing performance, it remains an incredible success.
Moreover, the company also increased its quarterly dividend three months ago by 6%, forcing the yield to more than 3.3%. Most significantly, the company has been increasing its dividend for the past 40 years which throws light on its amazing long dividend growth streak.
As a matter of fact, the company’s dividend surge of 6% was in line with its five-year average, which has fluctuated in the range of 5% to 7% but somewhat less than the 10-year average dividend growth rate of 15%.
However, one remarkable thing is that the company has started holding less cash and returning a huge part of it to stockholders since it shifted from yearly to quarterly dividends in 2007. Moving onward, after numerous years of struggle, it looks like the company is finally headed back in the right direction. Furthermore, it appears the company will endure and adapt to variable tastes, a thing that the company has been doing for decades.
On the other hand, the company is taking various steps to appeal more to consumers by making a great use of technology to provide a superior dining experience for consumers. The company’s new exciting table service is already being used at more than 500 restaurants, and it further plans to introduce this service in over 14,000 restaurants in the U.S.
Summing up
McDonald’s looks fairly valued, as it currently trades at a price-earnings (PE) ratio of 22.92, which is lower than the industry average of 42.86. Keeping in mind escalating health concerns, McDonald’s has decided to use healthier ingredients which is a great plus for the company moving ahead.
Moreover, the company’s new All Day Breakfast is also displaying positive signs of growth. McDonald’s prospects, together with its lavish dividend yield, make it a buy.
Disclosure: No position in the stocks mentioned in this article.
Start a free seven-day trial of Premium Membership to GuruFocus.
