Earnings should continue to rise as the global economy expands and the company’s three-pronged expansion plans bear fruit.
The firm recently announced that it’s considering selling or spinning off part of its artificial intelligence firm, which could prompt additional spinoffs to unlock more value.
In the meantime, the company’s stock trades at a reasonable 29.1 times the company’s earnings forecast.
MCDONALD’S CORP. (New York symbol MCD) is a fast-food giant which now operates 39,000 restaurants in 120 countries. Franchisees own roughly 93% of those outlets.
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Starting with the December 2021 payment, McDonald’s is raising your quarterly dividend by 7.0%. Investors will then receive $1.38 a share instead of $1.29. The new annual rate of $5.52 yields 2.1%.
McDonald’s has raised its annual dividend rate each year since 1976. With this latest increase, the company’s dividend has grown an average of 8.0% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Highest.
The stock has gained 26% since the start of the year, and now trades at 29.1 times the $9.08 a share that McDonald’s will probably earn in 2021. That’s a reasonable multiple as the company’s earnings should continue to rise as the global economy rebounds.
McDonald’s now plans to fuel its long-term growth with a new strategy. The plan is based on three main ideas: Maximizing its marketing by communicating its story and brand value; focusing on the classics—providing good burgers, chicken, fries and coffee; and, doubling down on what McDonald’s calls “the 3 D’s”—digital, delivery, and drive-thru.
Under that strategy, the company acquired Dynamic Yield Ltd. in 2019. The Israel-based firm uses artificial intelligence software to create personalized marketing offers.
For example, Dynamic’s technology automatically suggests additional menu items at McDonald’s drive-thru displays and self-serve kiosks that coordinate with the customer’s own selections. It can also make recommendations based on the weather, time of day, top-selling menu items for that particular outlet, and other factors.
However, franchisees have complained that Dynamic’s system has not boosted their sales as much as the company promised. As a result, McDonald’s is now reportedly planning to sell part of Dynamic. Whether it opts for a sale to private investors or a public offering, it would likely retain controlling interests.
The fast-food giant is also looking at long-term growth by testing a meatless burger (called McPlant) in several U.K. markets. The new product should help the company tap into rising consumer interest in meatless foods and better compete with rival chains that already have vegetarian options. If this test is successful, McDonald’s could launch the McPlant in the U.S. and other countries in 2022.
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