|Minyanville.com, Summer, 2012. This article was written with Oliver Pursche, of Gary Goldberg Financial Service. It was part of a series of articles developed under an agreement with minyanville.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week.|
Ever since McDonald’s (MCD) stubbed its toe in April over a nuggets menu imbroglio, the stock has drifted steadily downward, hitting $87.64/share at this writing, a drop of nearly 13% from its high. Is it time to abandoned Mickey Ds?
In a word, no. More emphatically, not by a long shot. Somehow, I think individual investors got the idea that successful investing is exciting. I think a lot of successful investing should be as exciting as watching paint dry.
For instance, without much fanfare McDonald’s has raised its dividend over the last decade from $0.24 per share to today’s annualized rate of $2.80, an increase of more than tenfold. What in this world grows 28% annually?
Likewise, if you purchased McDonald’s shares at about $27 a decade ago, they have also, without too much fanfare, risen to about $100 – a triple – before settling at today’s price. So, in the face of a 300% gain in 10 years, I question the reasoning of investors who assign so much meaning to a two-month performance.
And let’s not forget, investors who have hung in for the past decade have a yield of 10% ($2.80/$27) and presumably rising. That means if McDonald’s shares never rise another $1 and McDonald’s continues to pay its dividend, that 10% annual return will beat the historical average of the S&P 500 year in and year out, even if the stock loses 50% of its value. How many professional money managers can match this performance?
Perhaps the most important disclaimer in the investment field is that past returns do not guarantee future results, and bullish as I am about McDonald’s, this is an idea that needs to seriously considered.
In my mind however, this risk is largely ameliorated by the fact that the same management team that delivered such spectacular results over the last decade is largely in place. Moreover, global economic trends favor the budget friendly product that McDonald’s offers at its installed base of 33,000 restaurants serving 68 million people in nearly 120 countries. Every day.
I’m hard-pressed to believe that getting the menu wrong one spring season is going to stop this juggernaut. If you think it will, I hope you will sell your shares because I’m a buyer.