Can McDonald’s become a stock in a billionaire maker?
There is no denial McDonald’s(NYSE: MCD) It is the best name in the fast food industry. Not only is it the biggest burger chain in the business (as measured by the number of locales and revenue), its operations have become the gold standard for how restaurants manage their franchise business. That’s why McDonald’s stock is a very reliable winner.
But a billionaire maker? That’s a different story. McDonald’s is ultimately exposed to the health of the fast food business, but this is not a growing industry. It may take a long time for a modest investment in this stock to turn into a seven-figure total.
However, there is a secret sauce that we help out here, allowing you to work much faster than you think.
But first thing first.
You know the company of course. As mentioned, McDonald’s, which has nearly 43,000 stores, is Restaurant businessbut perhaps the most famous and most nostalgic, dynamic one that still works courtesy of the fast food chain.
But that may not be the company you think is. Only about 5% of these locations are actually owned and operated by the parent company itself. The other 95% of restaurants are franchises, managed by individuals and third parties seeking to make use of strong brand names for their profits.
On the surface, it may seem like trivial details. All restaurant franchises, after all, agree to run their business according to the franchisor’s requirements and purchase supplies and materials from approved providers. Second, the franchisor will help support and promote the brand.
However, there are some distinct differences between McDonald’s and most other fast food chains. First, McDonald’s capital requirements, royalties, fees, and operational expectations are collectively higher than the average for the restaurant franchise industry. Secondly, unlike almost every other fast food franchise, McDonald’s franchisees don’t actually own the buildings they run. They rent it from their parents and pay a growing market-based price for this access.
As such, McDonald’s is often described as one of the largest real estate companies in the world. It owns over $40 billion in property and related equipment. And yes, this makes a global difference to shareholders.
Simply put, McDonald’s franchisees are here to bear the brunt of business risk. The parent company’s royalty rate is between 4% and 5% of total sales for each locale, regardless of whether the store is profitable or not. The monthly rent payments for each location are also a percentage of the revenues of that location, regardless of the profitability of the store.
Connect dots: Even if store operating costs skyrocket, McDonald’s businesses themselves will not be affected much. That revenue continues to flow and even grow, at least in the inflation phase. The outcome for shareholders is normal stable revenue for decades and subsequent profit growth.
But the real star of the show is McDonald’s dividend. Since 1976, the company has not only paid something like clockwork, but has also increased its dividend payment per share each year for the past 48 years. More importantly, we could afford this steady cadence of dividend growth. Given McDonald’s pure size and mastery of the fast food business, this streak doesn’t tend to end soon either.
But the bigger question remains: Could McDonald’s be a stock in a billionaire maker?
Yes, that’s possible, but there are important details to inject into the discussion.
McDonald’s is clearly not a growing stock of the same vein. nvidia or Amazon. The fast food industry is already quite saturated, so most future growth, even if it’s the strongest name in the business, comes from mere population growth. For this purpose, the company’s interest, taxes, depreciation, and revenue before amortization (ebitda) Over the past few years, it has only grown an average annual growth of around 3.3%.
However, there is a reason why McDonald’s stock has risen nearly 1,700% over the past 30 years. That’s another way restaurant franchisors add value. By buying back shares that are circulated in open markets. In the same time frame, the company uses a portion of its reliable profits to halve its outstanding She accounts by about 1.4 billion to over 700 million, resulting in improving all per share financial indicators. did.
But this is only half of the sauce that makes secret billionaires. The other half uses the increase in dividends the company is postponing to buy more shares of increasingly valuable stock. Since then, the $30,000 investment in early 1994 is worth $1 million today by reinvesting the dividends McDonald’s has been paying.
Obviously, past performances do not guarantee future results. Certainly, it is completely naive to pretend to be a very fruitful environment and opportunity for this company over the last 30 years. It’s the same environment that works on the next 30. Interested investors should pay particular attention to how much interest future franchisees are present in the declining and attractive franchisees of this fast food chain.
Still, winners tend to remain winners only because they are huge sizes that usually keep checking out their competitors. If there’s nothing else, McDonald’s will at least bring such muscle to the table.
The key for you is simply leaving it alone, giving it time and reinvest the dividends, doing the majority of the job.
Consider this before purchasing stocks at McDonald’s.
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