Arrow-right Camera


Aggressiveness of McDonald’s makes for an attractive buy

Sun., April 22, 2012

McDonald’s continues to be one of the best defensive dividend-paying stocks you can buy today. (Associated Press)
McDonald’s continues to be one of the best defensive dividend-paying stocks you can buy today. (Associated Press)

The Dow’s top performer in 2011, McDonald’s (NYSE: MCD) recently posted disappointing February sales and has a new CEO on the way. Don’t worry too much, though, about the company’s growth prospects.

Incoming CEO Don Thompson has spent 22 years with McDonald’s, recently overseeing more than 14,000 U.S. stores and the rollout of the profitable McCafe beverage line.

Between 2002 and 2011, McDonald’s increased average annual sales by 6.4 percent and more than doubled its operating profit margins. The company boasts a five-year average operating margin of 27.4 percent, trouncing that of its closest competitor. McDonald’s has paid uninterrupted dividends since 1976, with an impressive recent yield of 2.9 percent and a remarkable average annual dividend growth rate of 20 percent over the past five years.

An oft-overlooked aspect of Mickey D’s is its value as a real estate play, as it owns thousands of prime commercial properties throughout the world.

This top dog in fast food continues to be one of the best defensive dividend-paying stocks you can buy today. (“The Motley Fool Income Investor” newsletter has recommended McDonald’s.)

Ask the Fool

Q: Is renters insurance worth it? – B.W., Norwalk, Conn.

A: Very often, yes. The value of your belongings is probably higher than you think, and renters insurance can protect you against theft or damage, offer some personal liability protection, and maybe even pay for temporary housing if your apartment is damaged.

When signing up, you decide the total dollar value of property you want to insure. Some policies will pay you enough to cover the depreciated value of various items at the time of loss, while others will cover replacement costs. The latter is much better.

Renters insurance can cost very little. Compared with the losses you might incur, it’s often well worth it.

My dumbest investment

I bought stock in Fannie Mae and Freddie Mac after believing a high-ranking official that they were in great financial shape. I could have doubled my profit in two weeks, but I was not planning to speculate. I just wanted investments that would pay decent and reliable dividends.

Then the stocks collapsed. I ended up selling at a 75 percent loss – which was still a good move, since they later fell even more. I learned not to trust “experts.” – T.S., via email

The Fool responds: You can get useful insights and ideas from experts, but no expert is perfect, and some don’t even have strong track records. Always try to make your own decisions, assessing an investment’s strengths, risks and potential.

Stocks that have plunged may seem like bargains, but remember that they can keep falling, sometimes to zero. And as a dividend-paying stock falls, its dividend yield rises. The high yield might attract you, but do your due diligence first. Some fallen stocks are indeed bargains facing short-term challenges, but others are in deep and lasting trouble.

Click here to comment on this story »