McDonald's (NYSE:MCD)

Commonly called McDo, McDonald's is the world's largest fast food chain. It has more than 35,000 branches and 1,900,000 employees in 119 countries. Around 80% of McDonald's restaurants worldwide are franchised. The concept was created in 1940 by Richard and Maurice McDonald. Is it still necessary to present its famous products all over the world, such as the Big Mac or the Cheese Royal? MCD is one of the few rare companies to offer value while being an interesting growth driver.

The company experienced a dramatic turnaround in 2003, driven by a two-pronged strategy. In the United States, McDonald's increased sales by renovating existing branches, increasing menu selection and extending opening hours. Internationally, McDonald's grew very quickly, opting for franchising. Despite the company's already enormous size, sales literally exploded.

International operations drive profit growthThe rising middle class, particularly in emerging markets like China, India and Latin America, represents a huge opportunity for McDonald's. The company is well established in Europe, Asia/Pacific Islands, the Middle East and Africa. Its growth in Europe is mainly driven by France, Germany and the UK. In Asia, senior management has indicated that there is significant potential in the Chinese market. The company has adapted its menus to local cultures, such as Mac Teriyaki in Japan, Filet-O-Fish variations in China, and lamb instead of beef in India.

McDonald's International Revenue 2013

Geographic region	Percent of total revenue
UNITED STATES	32%
Europe	40%
Asia, Pacific, Middle East, Africa	22%
Others	6%
Total	100%

The average long-term dividend yield is a very decent 3.59%. The current yield, at 3.2%, is certainly slightly lower, but it remains very interesting given the current market valuation. Annual growth in distributions is sustained, with 17,93%. McDonald's has also increased its dividend for 37 consecutive years. The distribution rate remains acceptable, at 58.16%, which leaves some room for maneuver to the company in the event of a difficult passage, and ensures the progression of the dividend in the future.

The volatility, with 16.90%, is quite affordable for a growing company of this type. We can also see below that the title has significantly outperformed the market for many years : +25'000% since 1970... happy are the enlightened who bought shares at the time and especially who kept them! Despite this volatility and this prodigious performance, the title is not very sensitive to market variations, with a beta of only 0.28. The company indeed manages to hold its own in both recessionary and growth phases.

McDonald's is negatively correlated to the greenback. Although the company is based in the United States, McDonald's generates 68% of its business abroad. As other currencies strengthen against the dollar, goods sold in foreign markets become more valuable in USD terms, thereby improving revenues. A strengthening dollar, on the other hand, reduces the value of foreign sales. This finding translates into a strong inverse sensitivity to changes in the greenback, with a $risk of -0.85, a fall in the dollar being accompanied in principle by an increase in the value of the security in CHF.

MCD has all the qualities one would look for in a dividend payer. Yield, dividend growth and history, payout ratio, volatility, inverse sensitivity to the dollar... all the lights are green.

If we had to put a single downside to this beautiful picture, it would be the impressive increase in the share price. However, the fundamentals remain good and the valuation is still affordable, even if the PER is a little high at 18.55. Over the last five years, the share has also underperformed compared to the S&P 500.

In view of these figures, receives a rating 4 stars, which is a good risk/return ratio.

Sources: Wikinvest, Swissquote, Yahoo Finance, aboutmcdonalds.com, dividends.ch