McDonald’s Corp (NYSE: MCD) is the world’s 2nd largest fast-food company and the largest publicly owned
McDonald’s is undoubtedly a trailblazer and a king among restaurant stocks, with a market capitalization of $164.34 billion.
Main Takeaways: Investing in McDonald’s
- Step 1: Find a broker that allows you the resources you need when trading.
- Step 2: Practice with a demo account before using your own money.
- Step 3: Put money in your account in preparation to trade.
- Step 4: Purchase the amount of MCD stock you want.
McDonald’s History and Stock Performance
McDonald’s history begins in 1948 in San Bernardino, California, where two brothers, Maurice and Richard McDonald, started a small restaurant. They offered a novel concept: Food at half the price of their closest competitors.
In 1954, the brothers purchased 8 malt and shake mixers from entrepreneur Ray Kroc, who targeted their business. Kroc discovered that the brothers had developed a way to produce large amounts of food at a low cost by pre-cooking and reselling it in en masse through their self-serve restaurant. Kroc proposed to start a franchise program for the brothers and they opened the first McDonald’s restaurant franchise in 1955 in Des Plaines, Illinois.
Today, McDonald’s is located in more than 100 countries with over 36,000 restaurants that serve an estimated 69 million people every day. McDonald’s trails privately-owned Subway with roughly 44,000 locations worldwide as the world’s largest fast-food company. Subway’s stores are completely owned by its 22,000 franchisees, while McDonald’s restaurants are 82% owned by franchisees and 18% by the corporation.
Future Outlook for McDonald’s
McDonald’s had its initial public offering (IPO) on April 21, 1965, at $22.50 per share, and the stock price rose quickly to $30 per share on its first day of trading. One hundred shares of McDonald’s stock at $22.50 in 1965 would have turned into 74,360 shares by March 1999 and be worth roughly $15,700,000. (That’s after 12 stock splits and a 2% stock dividend distribution.)
MCD stock has recently made several new all-time highs. The company’s dividend yields just over 2% at present price levels, so MCD stock would probably not appeal to an income-minded investor looking for dividend income.
The stock trades at a price-earnings ratio (P/E) of 27.55 and its stock currently trades at 37 times its 2018 free cash flow of $4.4 billion. MCD stock is now considered fully valued by many analysts, although not all agree that the company’s stock is done with its bull run.
Some analysts believe that the company and its stock will continue gaining due to current U.S. economic strength. Historically, this point of view has some validity and most likely resulted in the company’s record earnings but note that the stock currently trades near record levels and seems overdue for a correction.
Why You Might Want to Buy it
Here are a few reasons that MCD might be a smart addition to your portfolio.
- Defensive stock: Food industry stocks tend to depreciate at a slower rate in adverse economic conditions. In other words, when money is tight, people still eat at McDonald’s. This holds true under normal conditions but due to its current record valuation levels, MCD stock could decline as much or more than the general market if a major downturn occurs in the stock market.
- Long-term growth: Despite rising competition and low dividend yield, MCD stock has consistently outperformed both the market and many of its competitors. McDonald’s has also been a market leader for decades regardless of food trends. Many consumers want 3 things that McDonald’s has always delivered: fast, cheap and convenient food, which is why McDonald’s has traditionally dominated the fast-food market.
- Rising dividend trajectory: McDonald’s is considered a “dividend aristocrat” because it has increased its quarterly dividend every year for the last 42 years. The company recently raised its dividend to $1.16 per share and has a trailing twelve month (TTM) dividend payout of $4.64. It only yields 2.17% at the stock’s current price level but if you happen to buy the stock at lower levels, the dividend yield will increase. The company’s dividend generally also increases when the stock rallies.
Considerations Before You Buy
Before you buy, make sure to take note of these things about MCD.
- Economic/stock market downturn: All stocks feel adverse effects during a sharp decline in stock prices or recession, and this could affect MCD’s price despite its defensive nature. A significant downturn in stock prices or the economy could increase its effect on the high-priced stock.
- Increased competition: McDonald’s has historically managed to remain relevant in the face of increasing competition for the same market. A growing number of chains like Subway, Chipotle Mexican Grill, Panera and Panda Express offer quality food for comparable prices. These companies have raised the stakes and could take more of the McDonald’s market share in the future.
- Health concerns: McDonald’s food has not been known as a healthy or modest calorie alternative. Its original burger, fries and soda meal package has become a classic reason to avoid eating at the chain for many younger and more health-conscious people.
- Behind the times: People looking for alternatives to meat have found that most other fast-food chains have responded to public demand and now carry meat substitutes like Beyond Meat, the Impossible Burger or their own versions. McDonald’s has yet to put a wide variety of meat-free meals on its general menu. The fast-growing popularity of plant-based diets could be a possible barrier to the company’s future growth.
How to Buy McDonald’s Stock Now
Do you already have a stock brokerage account with a reputable broker that provides access to NYSE stocks? You can just place an order in your existing brokerage account for MCD stock.
On the other hand, you have a wide range of choices of other online brokerages if you don’t already have an account.
Step 1: Pick a Broker
Your needs are the most important thing to consider when selecting an online broker. For example, if you have considerable experience in the markets and wish to trade multiple assets in a sophisticated trading platform, then you might choose a broker like Interactive Brokers since its Trader Workstation (TWS) platform is designed for more experienced traders.
If you have limited market experience and require research and educational materials, then you might opt for a broker like TD Ameritrade, which has a user-friendly interface and provides plenty of educational and research resources. E*TRADE could be a good choice for you if you need a bank account directly linked to your trading account.
Here are a few of our favorite online brokers for beginners.
|Broker||Best For||Commissions||Account Minimum||Choose your platform|
Get started securely through Webull’s website
1 Minute Review
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit. Webull is widely considered one of the best Robinhood alternatives.
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Get started securely through Ally Investment’s website
1 Minute Review
If investors are on the hunt for a bargain broker, Ally Invest could be the one. With low commissions across the board, Ally Invest (formerly TradeKing) stops potential investors in their tracks with its especially low mutual fund commissions. Commissions on stocks and ETFs are notoriously inexpensive as well, and for more active traders or those with larger account balances, commissions can dip as low as $3.95 per trade.
$3.95 per stock trade for Active Traders at Ally Invest
||$6.95 for fewer than 30 trades/quarter.||$0||
Get started securely through eTrade’s website
1 Minute Review
E-Trade is best known for its user-friendly browser, desktop and mobile trading platforms and its extensive research and educational information. E-Trade may not have the lowest commissions compared to discount online brokers, but customers certainly get their money’s worth from E-Trade’s comprehensive offerings.
60 days of commission-free trades with deposit of $10,000 or more
Step 2: Open Demo Accounts to Assess Trading Platforms
Most reputable online stock brokers offer their clients and prospective clients a free demo account. This type of account lets you trade with virtual money and offers a great opportunity for you to check out a broker’s services and trading platform without putting any of your funds at risk. You would probably be best off opening several demo accounts with different brokers to compare offerings.
You can also use demo accounts to test your trading strategy in a real-time pricing environment. Many trading platforms also allow you to backtest strategies so you can incorporate those into your trading plan.
Step 3: Fund an Account
You’re now ready to deposit funds into a live trading account. You can open accounts with many brokers without an initial deposit but you’ll still need a funded account to purchase MCD stock. Check with your broker on the different funding methods they accept, which can vary from broker to broker.
Step 4: Start Buying MCD Stock
Now that you’ve funded a trading account, you’re ready to buy MCD stock. Hopefully, you’ve used your demo accounts to watch and trade the stock and have an idea of the price level you’d prefer to purchase at. If not, take some time to determine an optimum buying level using technical analysis. You can then either enter a limit order at that target price or wait for the stock to get to that level and buy it at the market.
Is MCD Stock for You?
McDonald’s stock has undoubtedly been a great investment for generations of investors since its IPO in 1965. Nonetheless, many analysts now think that MCD stock at its current all-time high levels is fully valued and that further capital appreciation in the stock may be limited.
Also, despite its recent sharp upward trajectory, MCD stock’s dividend yield of just over 2% annually does not make the stock a great candidate for income investors, especially when better opportunities can be found elsewhere in the sector without the extra risk of buying a high priced stock.