McDonald's Stock Thrives as Dow Tanks

Douglas A. McIntyre

The Dow Jones industrial average has made an atypical move this year. So far, after a month of trading, it is down 0.99% to 28,256.03. Due to the current anxiety that the spreading coronavirus could become a plague, the market could go much lower. Among the 30 Dow stocks, one has handily outperformed them all in 2020. McDonald’s Corp. (NYSE: MCD) stock is up 8.28% to $213.97, near a five-year high.

McDonald’s is not isolated from the spread of coronavirus in China. It has about 3,000 stores there. Hundreds have been closed and more could follow. But McDonald’s posted strong earnings for 2019 and reminded investors how much money it has returned to them via stock buybacks and dividend payments.

For 2019, McDonald’s revenue was flat at $21 billion year over year. Net income was up 2% to $6 billion. Fourth-quarter numbers were what impressed Wall Street. The global comparable sales jump of 5.9% demonstrated broad-based strength, with increases in the International Operated segment of 6.2%. In the United States, the increase was 5.1%. McDonald’s appears to have put several quarters of slow growth behind it.

The earnings, and overall bulk of $21 billion in revenue, shows how much McDonald’s dominates the fast-food business. Chick-fil-A may have gotten headlines for how much people favor its chicken sandwiches. People may flock to Starbucks for breakfast. But McDonald’s owns the 24-hour clock of people who want food, albeit often unhealthy meals, for just a few dollars.

More important to investors now is the extent to which McDonald’s is a safe haven. When earnings were posted, management commented, “The Company returned $2.3 billion to shareholders through share repurchases and dividends in the fourth quarter and $8.6 billion for the full year, marking successful achievement of the Company’s targeted return of $25 billion for the three-year period ended 2019.” The generosity continues. McDonald’s has a $1.25 per quarter dividend. That is a 2.31% yield.

McDonald’s period as a growth stock is years behind it. However, it has become a steady performer on the top and bottom line, with a return to investors rarely available elsewhere.