By now you have heard the news. Fast food companies pay their workers so little that 52% of the "front-line" staff are on some type of public assistance. According to researchers at the University of California-Berkeley and the University of Illinois:
More than half of low-wage workers employed by the largest U.S. fast-food restaurants earn so little that they must rely on public assistance to get by, according to a study released on Tuesday. This ends up costing U.S. taxpayers billions of dollars a year, the study said. Data from the U.S. Census Bureau and public benefit programs show 52 percent of fast-food cooks, cashiers and other "front-line" staff had relied on at least one form of public assistance, such as Medicaid, food stamps and the Earned Income Tax Credit program, between 2007 and 2011.
What is important about this is that the government is basically subsidizing these businesses with U.S. tax dollars. American taxpayers are inadvertently paying part of these workers' salaries. When people complain about the deficit and national debt, the first thing that comes to mind is federal aid. And most people think of the recipients as lazy freeloaders. On the contrary, most fast food employees that I have encountered really hustle as the food is literary flung into bags seconds after you pay. Obviously, the first company that comes to mind is McDonald's (NYSE:MCD). The chain is projected to have $30 billion in sales next year. It serves over 69 million people a day in 34,500 locations around the world.
|Click to enlarge|
According to Forbes, workers in the industry as a whole use $3.8 billion in government aid each year to keep from starving. But the 707,000 McDonald's workers in the United States needed the most:
The workforce at McDonald's alone uses $1.2 billion in annual aid benefits... Meanwhile, the top ten fast food chains reported over $7.4 billion in profits, and their highest-paid corporate execs received nearly $53 million last year.
For the taxpayer, this news is very disturbing. Especially as the government struggles to pay its bills. However, as a McDonald's shareholder this is very appealing. Who doesn't want to own a piece of a company where someone else pays over $1 billion a year in payroll expenses? And there is a healthy dividend.
But according to the Wall Street Journal, investors should stay away from the stock. The quality of service has gone down, and third quarter earnings, which will be announced on Monday are expected to be flat. The shares started a nice run at the beginning of 2013. But the dip has lasted for six months now. The 50-day EMA has fallen below the 200-day EMA forming a "death cross." Although it is just a technical signal, it is a very negative one. Right now it would be speculation to go long in my opinion, so don't bet the rent on it. Public opinion could shame the company into paying higher wages which will detract significantly from the bottom line.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.