McDonald’s (MCD) is putting its money where its mouth is. Earlier today the fast food giant announced plans to return as much as $20 billion to shareholders by 2016 through dividends and stock buybacks. This would represent a 10% to 20% hike over how much was returned to shareholders in the past two years.
It’s no secret that I like stock buyback programs. For reasons I discussed last week, I generally consider them a plus for investors. And then there’s McDonald’s dividend. MCD goes ex-dividend tomorrow (May 29), so shareholders as of today’s close will receive $0.81 per share on June 16. At current prices MCD has a 3.19% dividend yield.
But my longtime readers can tell you that I’m not backing the Golden Arches right now. Last month I featured McDonald’s as the Stock of the Day and warned against buying into the near-term hype surrounding its Q1 earnings report.
The fact is that while McDonald’s is not shy about using its cash to reward shareholders, it’s struggling to keep up the sales and earnings momentum. For FY 2014, the company is expected to post just 3.2% sales growth and 3.8% earnings growth. And the consensus EPS keeps getting lower and lower. In the past ninety days analysts have cut their FY 2014 estimates from $5.84 per share to $5.76 per share. This uncertainty typically precedes disappointing earnings reports.
Wall Street largely recognizes this; the stock has barely budged in the past month. So despite today’s billion-dollar announcement, MCD remains a C-rated hold in Portfolio Grader.
While MCD may not be to my taste, there are other fast food and casual restaurants that are more palatable. Below are the top five rated restaurant stocks in Portfolio Grader:
|Symbol||Company Name||Quantitative Grade||Fundamental Grade||Recommendation|
|BKW||Burger King Worldwide, Inc.||A||B||Buy|
|BWLD||Buffalo Wild Wings, Inc.||A||B||Strong Buy|
|JACK||Jack in the Box Inc.||A||B||Strong Buy|