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McDonald’s Corp. (NYSE: MCD) has enjoyed the status of being the greatest restaurant story in history. In our lifetime, or in any for that matter, the company grew from a start-up to a Dow Jones Industrial Average component with over 32,000 restaurants in its global empire. But what gets interesting is that McDonald’s is not just the world’s largest restaurant chain. McDonald’s has roughly seen its share price double in the last five years and now the stock is effectively worth as much as the entire public universe of restaurant chains in the United States. The tally is about $72.5 billion for the rest of the public restaurant universe versus about $69.8 billion for that of McDonald’s. This begs a question…. Can McDonald’s keep growing in this manner?
We tallied up the likes of Yum! Brands, Inc., (NYSE:YUM), Starbucks Corp. (NASDAQ: SBUX), Darden Restaurants, Inc., (NYSE: DRI), Chipotle Mexican Grill, Inc. (NYSE: CMG), Tim Horton’s Inc. (NYSE: THI), Wendy’s/Arby’s Group, Inc. (NYSE: WEN), Burger King Holdings Inc. (NYSE: BKC), Panera Bread Co. (NASDAQ: PNRA), Brinker International Inc. (NASDAQ: EAT), Jack in the Box Inc. (NASDAQ: JACK), Buffalo Wild Wings Inc. (NASDAQ: BWLD), Papa John’s International Inc. (NASDAQ: PZZA), Sonic Corp. (NASDAQ: SONC), and Domino’s Pizza (NYSE: DPZ).
And there are more than twice as many public restaurant and dining companies not reviewed for the restaurant chain tally and more which we showed in the chart of the restaurant and dining stocks. As far as the restaurant counts? That is not even close either. The above named restaurant chains have a combined tally of about 110,000 stores versus the 32,000+ from McDonald’s. Not even close, at least when you consider the nominal figure. This is one of those extraordinary moments in time where there almost exists the world’s greatest investment conundrum…. A value trap against its universe of peers, yet a value trap that still manages to represent growth a reasonable price and is still attractive to many investors. This also may end up setting one of the world’s greatest and most difficult pairs trades ever.
Everyone, or at least most everyone, loves dividends. While some investors love share buybacks, dividends seem to be the new way we are seeing for companies to reward shareholders. The good news is that many big companies are raising their dividends after the 2009 wave of dividend cuts. Two of our recent picks for dividend hikes, Gap Inc. (NYSE: GPS) and Kimberly-Clark Corporation (NYSE: KMB), have raised their payouts just this week. These two just beg the question about which other companies will join in on the dividend hike brigade. We have given odds on three companies we continue to expect dividend hikes in 2010. These are J.P. Morgan Chase & Co. (NYSE: JPM), General Electric Co. (NYSE: GE) and The Dow Chemical Company (NYSE: DOW).
Companies seemed to prefer share buybacks in 2007 and 2008, and maybe part of 2009. Why not, if the stock is cheap? But then 2009 came and many companies were derailed by the recession and that forced many big names to do the unthinkable… dividend cutting. But now things have started adjusting to the new normal and dividend payouts are either being lifted or being brought back closer to their former payout rates. There are many big companies which are likely to hike their dividends, and some which need to start paying dividends.
It was early in October before earnings season kicked off into full thrust when we first reviewed many large or actively traded stocks which had not participated in the stock market rally of 2009. At the time, the DJIA was up 12.75% for the year, and the S&P 500 Index was up more than 19%; as of Friday’s post-jobs data close the DJIA is up over 18% and the S&P is up 22%. To add an even more extreme measure since the March 9 close that traders use as the official pivot close before the great bull market of 2009 started, the gain the the DJIA is up over 58% and the S&P 500 is up over 63%. Yet it is amazing. Some of these stocks that have been left behind n the rally have still been left behind.
It’s another rough trading day in the stock market. It is bad enough that the DJIA is down over 3% to decade lows and under 7,000… But even almost all of the defensive stocks are down today. Many of these have been absolutely bashed in recent days and weeks as you will see compared to their 52-week highs.
Thursday morning we will get earnings from The Coca-Cola Company (NYSE: KO), and this will likely be the big set-up play for Friday’s Pepsico, Inc. (NYSE: PEP) earnings. We have prepared a detailed preview for Coca-Cola’s earnings.
