By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 10/21/10 Sign up for free Cabot Wealth Advisory e-newsletter McDonald's (MCD) operates 32,000 fast-food restaurants in 118 countries and generates $23 billion in sales.
Sales in Europe have been surprisingly strong, while sales in the U.S. are not nearly as weak as other restaurants because Americans are eating at less expensive restaurants, such as McDonald’s, to save money.
Sales and earnings increased 8% to 10% per year during the past 10 years, and dividends jumped 25% per year. We forecast sales, earnings, and dividend growth of 9% to 10% per year during the next five years. MCD’s ability to innovate ahead of competitors should keep growth intact.
MCD shares are reasonably priced at 15.6 times forward 12-month EPS. Dividends have been paid since 1976 and currently provide a yield of 3.2%.
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J. Royden Ward
Editor of
Cabot Benjamin Graham Value Letter A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of
Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the
Value Letter.
By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 6/28/10 Sign up for free Cabot Wealth Advisory e-newsletter
There are literally thousands of companies from which to choose, but only a handful possess near-perfect growth records. Many years ago, I developed a system to measure the growth consistency of a company’s earnings and dividends. Companies that have increased their earnings and dividends at least 10% in each of the past 10 years receive a perfect score. Companies with near-perfect records of steady growth coupled with strong balance sheets and clear outlooks for future growth are generally worthwhile candidates for long-term investment.
One of the most attractive very high-quality companies in my database of 1000 stocks is McDonald’s.
McDonald’s (MCD) operates 32,500 fast-food restaurants in 118 countries and generates $23 billion in sales. International sales have provided much of the company’s revenue and earnings growth during the past 20 years and now contribute 65% of total sales. Worldwide same-store sales increased 4.8% in April and May compared to an increase of 4.2% during the quarter ended 3/31/10. While international sales are leading the growth, sales in the U.S. are stronger than other U.S. restaurants because Americans are eating at less expensive restaurants, such as McDonald’s, to save money during the weak economy.
McCafe beverages, which include latte, frappe, and cappuccino offerings, have become a big hit. Free Wi-Fi access to the Internet and the new Breakfast Dollar Menu are also helping to attract diners. Sales increased 5% and EPS (earnings per share) rose 16% during the last 12 months. We expect sales and EPS growth of 6% and 10% respectively during the next 12-month period and beyond.
MCD shares are reasonably priced at 14.9 times forward 12-month EPS with an attractive dividend yield of 3.2%. MCD has raised its dividend by an eye-popping 25% per year during the past 10 years. The balance sheet is strong with modest debt and $2 billion in cash. McDonald’s financial history includes steady sales, earnings and dividend growth during the past 35 years. I recommend MCD as a buy now.
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