McDonald's (MCD), a Dividend Aristocrat, has a lot of similarities with another one, Coca Cola (KO). They each have some of the best known brands in the world, so well known that it's unnecessary to explain what they do. Their final products provide quality food/drinks to the public at moderate prices. They are both global companies investing for major expansion in rapidly growing Asian, African and Latin American countries. Both have strong financials and are proud of annual dividends increases over the long term. In addition, each has a large position in treasury stock, equivalent to a major company. The franchise concept at McDonald's is similar to the bottler system at Coca Cola.
MCD began its first restaurant, as we know it, in 1955 and has grown to more than 32,000 restaurants with over $22 billion in revenues last year when it returned $5 billion to shareholders (dividends and share repurchases). Sales were divided into 3 principal regions:
2009 revenues (billions of $):
____MCD owned__Franchises__Total
US______$4.3______$3.6______$7.9
Europe___$6.7______$2.6______$9.3
APMEA___$3.7______$0.6______$4.3
2009 margins (billions of $):
____MCD owned__Franchises__Total
US______$0.8______$3.0______$3.8
Europe___$1.2______$2.0______$3.2
APMEA___$0.6______$0.4______$1.0
In recent years, (1) US revenues have been flattish, (2) Europe has had a small increase and (3) Asia/Pacific-MidEast and Africa (APMEA) revenues climbed the fastest. US and European revenues were hurt by slightly lower sales at company owned restaurants while revenues at franchise restaurants rose. The franchised margin dollars represented almost 70% of combined margins in 2009 and have been providing the bulk of growth in total margins at MCD.
Like KO, MCD has been aggressively buying treasury stock. MCD has purchased almost 600 million treasury shares worth $40 billion (at market price). Dividends were first paid after the stock offering in 1976 and raised every year since then. The historical stock price can be divided into 2 periods. It started at pennies and rose to almost $50 at the start of 2000. Then the stock fell off a cliff, plunging to the low teens in four years, a very trying time for loyal stockholders. In 2003 MCD stock began its 2nd period when it was "reinvented," becoming "better, not just bigger." The stock resumed its growth trajectory, reaching 70 with a 3.2% yield. In the last 10 years the stock has more than doubled from 32 to a new record, few can make that claim. Revenues are growing. EPS in 2009 is forecasted to rise 13% to $4.50 and another 8% next year to $4.88 enabling MCD to extend its streak of higher annual dividends and purchasing more treasury shares. When eating at McDonald's, remember its stock should benefit from more customers around the world eating at McDonald's (and drinking Diet Coke) and have a great day.
Disclosure: Long KO
