How to Buy McDonalds (MCD) Stock

Jump straight to it: Buy MCD stock with Interactive Brokers as your online broker.

McDonald’s Corp (NYSE: MCD) is the world’s 2nd largest fast-food company and the largest publicly owned food service retailer. McDonald’s stock hit an all-time high of $218.96 per share on July 26, 2019, after the company announced its 2019 2nd quarter earnings. So, is McDonald’s stock right for your portfolio?

McDonald’s is undoubtedly a trailblazer and a king among restaurant stocks, with a market capitalization of $192.02 billion.

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. 

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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 37,000 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. 

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 2.51% at present price levels, so MCD stock would probably not appeal to an income-minded investor looking for dividend income. But, will McD’s remain this strong? You must monitor the asset compared to other fast food companies. Yes, fast food consumption will rise as the COVID-19 pandemic lifts, but there’s a lot of competition, fast food workers are unionizing and the average fast food employee often leaves for better work.

The stock trades at a price-earnings ratio (P/E) of 22.08 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 MCD

Here are a few reasons that MCD might be a smart addition to your portfolio. You’re looking at more than stock price because the fast food industry gives you many things to consider.

• 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 47 years. 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 in 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 meat alternatives 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 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.   

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. 

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