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The McDonald’s of today isn’t the powerhouse McDonald’s of yesteryear.
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Still, what this company lacks in growth potential, it makes up for in other ways.
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Shares of this dividend-paying consumer staple name perform particularly well when other stocks aren’t.
No one denies fast food restaurant chain McDonald’s (NYSE: MCD) offers consumers an affordable eating experience. Sometimes, however, that’s still not enough. As CEO Chris Kempczinski commented during November’s third-quarter earnings conference call, “We continue to see a bifurcated consumer base with traffic from lower-income consumers declining nearly double digits in the third quarter.” He reminded investors, “it’s a trend that’s persisted for nearly two years.”
And this dynamic raises an important question for investors: How much have the money struggles being faced by a key segment of McDonald’s customer base adversely impacted this company’s stock?
Answer: Not as much as you might think. Although it hasn’t kept pace with the technology-led S&P 500 (SNPINDEX: ^GSPC) for the time frame (not that you would expect it to), over the course of the past five years, McDonald’s stock has gained 46%. That number is ratcheted up to 63% when factoring in reinvested dividends during this stretch.
Now take a closer look at the chart above. Yes, the broad market has outperformed McDonald’s stock for the five years in question. Shares have made much more consistent forward progress, though, even performing well during 2022’s bear market. Indeed, the fast-food restaurant chain’s stock has frequently moved in opposition to the S&P 500’s direction during this five-year stretch, confirming its categorization as a defensive holding.
That being said, know that prior to the beginning of the past five years, McDonald’s stock consistently outperformed the S&P 500. Credit the fact that the company still had room to expand its physical footprint then, mostly. Now with 44,599 restaurants up and running worldwide, meaningful expansion opportunities are diminishing in number. From here, the bulk of the company’s top- and bottom-line growth is going to come from higher prices and more foot traffic. This, of course, is easier said than done, as last quarter’s U.S. same-store sales growth of 2.4% reminds us.
Nevertheless, a slower-growing McDonald’s is still a reliably formidable one.
