McDonald's: The Highest Yielding Of The Iconic American Brands

| About: McDonald's Corporation (MCD)

For the purpose of this article I have singled out three American brands that I view as the most valuable. I believe their brands are unassailable. They are McDonald's (MCD), Nike (NKE) and Coca-Cola (KO). These giants are surely those brands we have all grown up with and brands that conjure up instant memories in our minds. Of the three I have mentioned I believe that McDonald's is the strongest.

Warren Buffett has stated that Coca-Cola is a better company than McDonald's. This links to a video of his remarks during a talk to students at the University of Florida in 1998. While he was telling this, he casually held aloft a can of Coke in his hand. Now we have the benefit of hindsight so let's see how the three companies that i mentioned have performed since 1998:

The stock prices of MCD, NKE and KO since 1998, vs. the S&P:

Click to enlarge

It appears that Mr. Buffett was wrong on this one.

Now, past performance is not a guarantee for the future. But what do you do when you want to hire someone - you check his or her personal history. It's a fairly good indication of how he or she will behave in the future. So, while Nike stock price has soared the highest of these companies since 1998, its earnings per share have grown at a pace of 14.6% annually during the period of the last ten years, McDonald's earnings have grown 23.8% annually during the last ten years, and Coca-Cola's earnings have grown 9.7% annually for the last ten years.

High earnings growth of McDonald's has translated into a high annualized dividend growth as the table below illustrates.

Year

Dividends Paid MCD

Dividends Paid NKE

Dividends Paid KO

2011

2.53

1.24

1.88

2010

2.26

1.08

1.76

2009

2.05

1

1.64

2008

1.625

0.92

1.52

2007

1.5

0.74

1.36

2006

1

0.62

1.24

2005

0.67

0.5

1.12

2004

0.55

0.4

1

2003

0.4

0.28

0.88

2002

0.235

0.24

0.8

2001

0.225

0.24

0.72

2000

0.215

0.24

0.68

1999

0.195

0.24

0.64

1998

0.1763

0.24

0.6

Annualized dividend growth

22.74%

13.47%

9.18%

Click to enlarge

Source: Dividend History Index

McDonald's has demonstrated that it can grow its dividend at a very fast pace. Yet despite this it still has a relatively high yield compared to those other two gigantic American brands:

McDonald's current dividend yield: 3.16%

Nike current dividend yield: 1.44%

Coca-Cola current dividend yield: 2.58%

People, including Jim Cramer, have been freaking out recently because McDonald's has a new CEO. I think this is not fair to this iconic company. If you had to disappear today for 20 years and had to invest all your family's money in one stock, the one you might pick is McDonald's. You would have 150% of your invested amount as dividends paid into your account after those 20 years, assuming a 15% tax on dividends and also that McDonald's will keep increasing its dividends by at least 10% per year during that period.

Disclosure: I am long MCD.