McDonald's results meet expectations, dividend underpin

One of our most widely held US company holdings is McDonald's. Possibly one of the most recognisable brands across the world, seventh on last years Forbes list, behind Apple, Microsoft, Coca-Cola, IBM, Google and Intel. All powerful names in their own right. McDonald's operates 34 thousand outlets around the world, managing one in five of those, creating employment for hundreds of thousands of people that serve nearly 70 million people daily. That is amazing, because that means that McDonald's will basically serve the population of the planet every 101 days or so. 25.2 billion people served a year.


Not the most glamorous company to work for, but Jeff Bezos, Jay Leno, Sharon Stone, even Pink and Carl Lewis have worked there at some stage. Why not, as a youngster, it might give you a good grounding to understand "how it all works". The company has not lowered their dividend payment for a single year since the inception of their dividend paying history, and that stretches back to 1976. That is always a good sign, the most recent news on that front was an increase of the quarterly dividend to 77 cents, announced by the board back in January.


That is all very nice. But McDonald's stock fell nearly two percent on Friday, so I suspect that the market was less than impressed with the results, which you can find here: McDonald's Reports First Quarter 2013 Results.


And it is glaringly clear there why the stock sank, revenues and profits flat to slightly lower. Earnings marginally higher, buybacks strong, but expected. At 1.26 USD for the quarter, that annualizes to somewhere around 5 Dollars worth of earnings for the year. 77 cent dividend, that means 3.08 Dollars worth of dividends. And that I think is the key in all of this, the dividend. Because, the stock price was above 100 Dollars a few days ago, but post this report dropped below it. You don't need to be a mathematical genius to work that yield out. The company has always rewarded their shareholders for being exactly that, holders of the company. The yield is more than three percent at around 100 Dollars a share.

But the outlook is wishy washy: "As we move forward, top-line comparisons will begin to ease while the challenging global environment and bottom-line pressures are expected to persist. For the month of April, global comparable sales are expected to be slightly negative. We are confident that we have the right plans in place to differentiate the McDonald's experience and strengthen our business momentum for the long term." What does that mean? I guess it means business as usual.


I suspect what might happen is that the growth expectations for this year are probably waning, the global consumer is feeling stretched. Easing commodity prices will be helpful for the business and their consumers, that is what I would think is a hidden positive. But for now the mood around the company and their stock is like flat coke, it is drinkable but leaves you feeling not quite satisfied. McDonald's still wants to be in every neighbourhood on the planet. They still innovate their menu items to stay abreast with consumer needs, tweaking the menu in different places for needs of their customers. The menu in Jaipur is not the same as the menu in Jakarta. Or Joburg, our menu is pretty boring. This is a keeper, and like their product, it is always going to be a consistent performer. We continue to hold and will accumulate if any negative sentiment pushes the stock much lower than current levels.