© Reuters. McDonald’s is on the safe side of inflation
McDonald’s (MCD) is the world’s largest and oldest fast food franchise. It operates nearly 40,000 stores in the United States and around the world.
The company recently joined several publicly traded companies taking steps to protect investors from rising inflation.
First, he increased his dividend by 7%, to 1.38 per share. This is well above the inflation rate, which hovers around 5% on an annual basis.
Second, it resumed its share buyback program. This could provide investors with additional protection against inflation, as share buybacks are typically bullish for a company’s shares. I am bullish on the stock. (See MCD stock charts on TipRanks)
A bullish strategy
Dividend hikes make stocks more attractive to conservative investors, who want to earn income while holding onto a company’s stock.
Share buybacks reduce the number of shares traded in the market, increasing the participation of existing shareholders.
Additionally, share buybacks can signal that the company’s shares are undervalued and a “vote of confidence” in the future of the company.
A sustainable franchise
McDonald’s is a franchise that has overcome the challenges of the times through ‘collective entrepreneurship’, which enables its franchisees-members, management and shareholders to share the risks and rewards of discovery and exploitation. new business opportunities.
It is a business model that has become the norm for other franchises.
MCD’s adaptation and innovation allowed the company to meet the needs of a diverse consumer market, from the baby boomer market in the 1960s to the global market in the 1970s and 1990s, including millennium market demands in recent years.
The Taking of Wall Street
Wall Street took notice of McDonald’s enduring advantage, making its stocks a big winner in the five decades it has been a public enterprise.
According to research firm S&P Capital IQ, McDonald’s shares have returned almost 17% on average per year, compared to S & P’s average return of about 11% per year. However, its stocks underperformed the entire YTD market.
That may change soon, as dividend hikes and share buybacks will draw Wall Street’s attention to the company’s growing free cash flow – the difference between operating cash flow and operating expenses. capital. According to Macrotrends, McDonald’s free cash flow increased 13.5% in 2017, 34.1% in 2018 and 20.9% in 2019.
TipRanks gives McDonald’s a smart score of 9 out of 10, citing strong technical data and increased hedge fund activity.
McDonald’s has a large audience of analysts. They rate his actions as a strong buy, based on 21 buys and three locks awarded in the past three months.
The average MCD price target of $ 267.87 implies upside potential of 9.8%.
McDonald’s is a sustainable franchise with strong cash flow available to fund dividend increases and share buybacks, to protect investors from inflation, and to deliver superior market returns.
Disclosure: At the time of publication, Panos Mourdoukoutas held shares of McDonald’s (NYSE :).
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