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McDonald’s: Solid Choice for Conservative Investors Seeking Well-Defined Income

Investors are encouraged to take another look at McDonald’s (MCD) says Richard Gallagher, Value Line Research.

The Illinois-headquartered corporation operates or franchises more than 39,000 fast-food restaurants in the United States, Canada, and overseas. It employs approximately 205,000 individuals and has a market capitalization around $160 billion. McDonald’s has been a component of the Dow Jones Industrial Average since 1985.

The fast-food giant’s results continued to recover in the third quarter. The U.S. business performed better than the company’s international operations. This was likely due to stricter measures to combat COVID-19 abroad vis-à-vis stateside as well as a less expansive drive-through presence in these overseas markets.

U.S. comparable-stores sales were up 4.6% driven by larger order sizes, which more than offset lower guest counts. Comparisons were down in the International Operated unit owing to lower traffic in France, Germany, Spain, and the United Kingdom.

Business in emerging markets was down even more with same-store sales declining in double digits as a result of weakness in China and Latin America. Looking ahead, we expect more of the same. The domestic operations will probably continue to be strong performers while results in foreign markets struggle amid stricter lockdown measures related to the recent global spike in COVID-19 cases.

The virus persists stateside but McDonald’s broad drive-through footprint and established digital presence should help it continue to outperform in the United States.

What’s more, the potential introduction of a crispy chicken sandwich in 2021 ought to help the giant restaurant chain better compete with popular rivals, most notably Popeye’s and Chick-fil-A.

The price of MCD stock is off less than 10% from its 52-week high. Consequently, capital gains potential is limited for this neutrally ranked equity. Still, these shares represent a solid choice for conservative investors seeking well-defined income. It checks all the right boxes for income- and safety-seekers, including a respectable dividend yield, our Highest Safety rank, and strong marks for Price Stability and Financial Strength.

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