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Aug
28
Ida Hansen
Buy McDonald’s for the Profit Margin and the Dividend
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McDonald’s (NYSE: MCD) is down for the year (chart below).

That should be looked upon as an opportunity to buy at a discount for long term investors.  The dividend yield, profit margin, and return-on-investment are all superior.  Over time, those should result in strong returns for the long term investor.

McDonald’s has a profit margin of nearly 20 percent.  That is twice that of the average member of the Standard & Poor’s 500 Index (NYSE: SPY).  It is right around the profit margin for Apple (NASDAQ: AAPL).  It is one of the strongest in the restaurant sector.

So is the dividend yield for McDonald’s.

At present, the dividend yield for a member of the Standard & Poor’s 500 Index is just under 1.9 percent.  It is over 3.4 percent for McDonald’s.  In addition, McDonald’s is a Dividend Aristocrat.  To be a Dividend Aristocrat, a company must have increased its dividend annually for at least the past 25 years. That means that the shareholders of McDonald’s got a raise every year just for not selling the stock.  It is also a tremendous show of strength for a publicly traded company just to pay a company.  Increasing it yearly is a very powerful sign of financial strength for a stock.

That obviously encourages long term investors not to sell, which provides needed stability for a company’s share price.

So does the return-on-equity of over 30 percent.  Legendary investor Warren Buffett looks for a return-on-equity of at least 20 percent.  That also places McDonald’s at the top when compared with others in its sector.  The return-on-equity measures how profitable a company is by what it generates from all of the money invested by shareholders.

McDonalds will not be delivering massive growth.

It is simply too big.  But that does not result in its profit margin or dividend yield being too small: exactly the opposite.  Those are what should be attracting long term investors to McDonald’s!

 



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