Market Wrap-up for Oct. 29 - What to Do with McDonald's (MCD)

Market Wrap-up for Oct. 29 – What to Do with McDonald’s (MCD)

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McDonald’s (MCD) has long been a popular stock for dividend investors, as it has increased its payout for 37 consecutive years. As a value stock there is not a whole lot more an investor could ask for given the power of the company’s brand and its focus on increasing the amount of capital it returns to investors. But the last few months and years have seen the fast food giant hit a few speed bumps, with growth grinding to a halt and sales dropping in a number of geographical locations. All of this has led so a sense of uneasiness when it comes to MCD shareholders.

Tough Times for MCD

Once one of the most reliable blue chips on Wall Street, MCD has begun to fall behind broad markets as its outlook looks increasingly bleak. The chart below shows MCD’s stock price over the trailing five years:

MCD

The stock had a great run-up in 2010 and 2011 with the rest of the equity world, but it hit something of a top in early 2012 when its price crossed into the triple digit territory. Since that point, the stock has been stuck in something of a range-bound rut; falling and rising between $85 and just over $100 for over two years. The concerning factor is that the broad stock market has done the opposite and rallied over that time period, continuing to add to its impressive bull run.

What’s Eating at McDonald’s?

In fact, a better question would be who is eating at McDonald’s. That answer is unfortunately less and less people. It seems that MCD has struggled to attract new customers in recent years as it has had trouble with earnings management and its same-store-sales (SSS), an important stat in the restaurant world. What’s more, the company has watched its two main competitors, Wendy’s (WEN) and Burger King (BKW), soar along with their stock prices.

Where its competitors have been credited with exploring new menu items in an attempt to attract more customers, McDonald’s has  been accused of resting on its laurels, and falling behind in options for its consumers. On top of all of that, the company has been the subject of a number of negative press and PR campaigns and events concerning everything from how it pays its employees to what is actually in its food.

All of this has combined to create headwinds for MCD’s stock and its future outlook.

MCD’s Future

Current shareholders in the company are likely growing concerned for the future of this once unstoppable juggernaut. For now, that answer remains unclear; what is clear is that if McDonald’s wants to spur more growth it will need to make some changes as a company. But that is not to say that investors should run out and sell the stock; it is merely one to keep a close eye on for how it fares in the future.

From a dividend standpoint, there is good news in that there is nothing we have seen that would suggest the company’s dividend is in any sort of danger; the company has a long history of raising its payout and valuing its shareholders. As a shareholder, remember that you purchased this stock for its dividend payments and consistent income stream; a rocky period in the stock should not be enough to shake you out of your position.

That being said, MCD is certainly a stock to keep an eye on over the coming months. Bargain hunters may find that the stock is sitting at an attractive entry point as it has endured quite a sell-off in recent weeks. Current shareholders will want to watch the company’s upcoming earnings and SSS reports to see if the stock can find some sort of regulation. Should the negative trend become more extended and the stock continue on its downhill spiral, it may be a candidate for selling, but it certainly has not created any need for panic at this point in time.

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