McDonald’s (NYSE: MCD), the world’s largest restaurant chain, is up for the last week and month of market action on speculation that activist investor Carl Icahn will target the company (chart below).
Icahn has done very well going after companies like Apple (NASDAQ: AAPL), so McDonald’s is certainly a tempting target.
Investors like Icahn will take a position in a company and then advocate for changes. A billionaire investor, Icahn does this very well. Recent profitable forays in addition to Apple include Ebay (NASDAQ:EBAY), Family Dollar Stores (NYSE: FDO), and Netflix (NASDAQ: NFLX).
As recent articles have detailed on this site, there is much to like about McDonald’s for activist investors like Icahn or those who prefer to buy-and-hold long term.
There is always something to be said for the biggest and the best; and that is McDonald’s. The profit margin of 19.50 percent is testament to that. Its operating margin of over 30 percent and return-on-equity of more than 30 percent are further proof. Financials like that appeal to activist investors.
What McDonald’s does not have is a great deal of appeal to growth investors.
The company is simply too big to produce huge growth spurts: the market capitalization for McDonald’s is just over $93 billion. Earnings growth is projected to be nearly 6 percent for the next five years. Nothing great, but a rate that doubles about every twelve years.
That also happens with the amount of the dividend, too.
McDonald’s is a “Dividend Aristocrat.” That means that the amount of the dividend has been increased annually for at last the past twenty five years. The dividend growth rate for McDonald’s over the past five years has been about 10 percent. From that, the amount of the dividend will double in around seven years. An income investor gets a double digit raise every year just for not selling their shares of McDonald’s!
If Icahn’s actions were to result in a gain like that of Apple, it would be very profitable for the shareholders of McDonald’s.
But there is much more too McDonald’s that makes it appealing as a long term buy. Its margins are robust. Combined with the rising dividend, there should be a healthy total return for the shareholders of McDonald’s with or without Carl Icahn!
