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Finally Time To Buy McDonald's?

Dividend Stream profile picture
Dividend Stream


  • McDonald's US-growth comes from share gains from other restaurants.
  • Innovation, all-day breakfast and a strong value menu are driving same-store sales growth.
  • Despite a 16% drop in share price, McDonald's is still priced well above average valuation.

As the bull market continued on, I became less and less enthusiastic about many of the 'blue chip' dividend payers in the S&P, including McDonald's (NYSE:MCD). Back in 2015 I was dubious about buying McDonald's despite the company's new turnaround plan. That was a mistake, as shares at the time were still under $100, and even now, after a big drop, are still $148.

On March 29th, 2016 I recommended 'taking some McDonald's off the table,' as I thought shares had run up too much. That was a good call for the short term, as shares did slide from $127 at that time to as low as $114 later that year, but things really turned around on continuing strong results toward 2017.

Courtesy of Google Finance.

Admittedly, my own record on McDonald's has been pretty mixed, and since shares really levitated last year, I threw my hands up and let it be. Then this happened: McDonald's took a big hit during the correction a couple weeks ago, then took another hit to the chin when analysts downgraded the stock on some doubt about the $1, $2, $3 value menu. Since its high in late January, shares of McDonald's are down a staggering 16.8%. That's a big move over events that are, frankly, not such a big deal.

That's why I'm taking another look at McDonald's today. McDonald's has gone from 'turnaround mode' into growth mode, and this article looks at that ongoing process. In addition, this article looks at McDonald's valuation in light of the recent drop.

Turnaround into growth

In the US, spending on going out to eat is pretty much flat year-on-year. The pie isn't expanding. That means, if McDonald's wants to grow domestically, it is going to have to take share from others. It has been doing that, and doing it well for the

If you're interested in McDonald's, feel free to follow me here on Seeking Alpha. As I mentioned, I am personally long this stock.

However, I write about topics at much more regular intervals in my Marketplace service, Streaming Income. In that service I write about broader themes and provide multiple actionable ideas for income investors. I invite you to take a risk-free look.

This article was written by

Dividend Stream profile picture
Dividend Stream is a contributing columnist for Real Money and TheStreet.com. He has been writing for Seeking Alpha since 2012.

Analyst’s Disclosure: I am/we are long MCD. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (15)

Orphan Brigade profile picture
Why does MCD have so much debt ? It seems they're drowning in it. ?
Chazuu profile picture
Total debt doesn't mean much. What is important is the ability to service the debt. I am comfortable that MCD can service its (Low interest) debt very well, even if the economy tanks.
Orphan Brigade profile picture
Thanks Chazuu, That makes more sense. Just seems like a lot capital flys out the window when they pay homage to that amount of debt. I imagine they borrow at very reasonable rates...
Anyone on the fence with MCD should realize one thing: If we experience a recession, crash, correction etc. then MCD will survive and probably gain compared to the rest of the industry. Why pay $10-$30 per person per meal when the economy tanks? Just go to McDonalds instead for a few $'s.
somedata1 profile picture
True that. GILD and MCD were two only stocks didn't tank in 2008.
somedata1 profile picture
Celg at 88/share and MO at 60/share are the best bets right now. MCD at 140/share will be a good buy.

Long MCD and bought a little too high.
somedata1 profile picture
What happened to overpaying a little? My return for MCD is suffering.
Buyandhold 2012 profile picture
McDonald's looks overpriced to me.

I view it as a hold.
John_Tierney profile picture
I bought and am still buying
PACKER man profile picture
The trend continues to head down. Too early to commit any funds!
The $140 is imminent
100%growth profile picture
Looks like a nice opportunity to add some shares indeed.
MolluskOS profile picture
Bought a bit in the sub $148.00 range Friday, bumping up the position by 5% as it was on sale (relatively speaking) and happily that coincided with a few doubloons to hand to deploy.
Dividend Stream profile picture
Yep, I got in a little bit as well. We'll see how it goes. Certainly beats bonds.
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