While the bull market is now five years old, fast food restaurant stocks such as McDonald’s (NYSE: MCD), Yum! Brands (NYSE: YUM), and The Wendy’s Group (NYSE: Wen) still have plenty of upside.
What is most compelling about these stocks is the high return-on-equity.
According to his biographer, Carol Loomis, this is the most important ratio for Warren Buffett, considered by many to be the greatest investor of all time. The return-on-equity measures how much has been made from all that is owned. Buffett looks for at least a 20 percent return-on-equity. The return-on-equity for McDonald’s, and Yum! Brands is much higher. As an example, Yum! Brands has a return-on-equity of 49.20 percent.
There are many other attractive features, too.
McDonald’s has a very high profit margin and a very high dividend yield. Making this income component even more alluring is that McDonald’s is a “Dividend Aristocrat.” That means that the company has increased the amount of the dividend annually for at least the past 25 years.
There is much to like about Yum! Brands and The Wendy’s Company, too.
Yum! Brands too has a solid dividend. The dividend for Wendy’s is higher than the average of just under 2 percent for a member of the Standard & Poor’s 500 Index. Both have the cash flow to increase the dividend, which is always alluring for income investors.
For growth investors, Wendy’s is especially appealing.
Earnings-per-share growth for Wendy’s this year is 16.70 percent. For the past five years, it was 15.20 percent. Over the next half decade, earnings per share are projected to rise by 17.65 percent, according to the mean estimate of the Wall Street analyst community. That is a very bullish trend for a critical indicator.
Growth around the world should take the stock prices for McDonald’s, Yum! Brands, and The Wendy’s Group higher. As consumers grow more affluent, they begin to eat out more. The first stop is generally the local fast food chain!