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Saturday, December 15, 2018  Spokane, Washington  Est. May 19, 1883
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Motley Fool: McDonald’s still cooking

McDonald’s profitability has shot to new highs, buoyed by a refranchising plan that, by lowering the proportion of company-owned locations, is boosting operating margins. (Associated Press)
McDonald’s profitability has shot to new highs, buoyed by a refranchising plan that, by lowering the proportion of company-owned locations, is boosting operating margins. (Associated Press)

Fast-food titan McDonald’s (NYSE: MCD) just closed its best year for customer traffic since 2012. A return to basics that stressed iconic brands such as the Egg McMuffin and Quarter Pounder helped, but so did new product launches, a refreshed value menu and food preparation improvements. Customers are loving the fresher menu items and are demonstrating their satisfaction by returning more often.

At the same time, profitability has shot to new highs, buoyed by a refranchising plan that, by lowering the proportion of company-owned locations, is boosting operating margins. Investors can expect that metric to rise again in 2018 as the company completes its refranchising push.

Meanwhile, management aims to deploy earnings into growth initiatives that include store remodelings, ordering kiosks, a mobile app and home food delivery. The company already offers delivery from more than 20 percent of its restaurants worldwide.

CEO Steve Easterbrook told investors earlier this year that, while executives are happy with their recent wins, “we have far greater ambitions.” Additional market-share gains would be impressive, but investors can rest easy knowing that income gains are likely from McDonald’s in the years ahead – whether sales growth accelerates or stays put.

The stock recently sported a dividend yield of 2.5 percent, and its payout has more than doubled during the past decade. It boasts a 42-year streak of dividend increases.

Ask the Fool

Q: What’s the “2 percent floor” in tax talk? – K.G., Fort Myers, Florida

A: It refers to miscellaneous itemized deductions. You can deduct only the portion of them that exceeds 2 percent of your adjusted gross income. For example, if your AGI is $50,000, your floor will be 2 percent of that, or $1,000. If your miscellaneous itemized deductions total $900, you’re out of luck. But if they total $1,750, you can deduct $750.

Qualifying expenses include certain home office expenses, tax preparation fees, investment-related fees, job-hunting expenses and unreimbursed job-related expenses. Unfortunately, the recent tax reform suspends these miscellaneous itemized deductions beginning with the 2018 tax year through 2025. So enjoy them this year!

Learn more in our tax nook at fool.com/taxes and from the horse’s mouth, at irs.gov.

Q: Whenever I buy stock, do I have to buy 100 shares or more? – E.J., Detroit

A: Nope. Most brokerages don’t restrict how many shares of stock you can buy. You can buy 16 shares or 87 shares or even just one share. Pay attention to what percentage of your investment is going to commissions, though.

If, for example, you buy 10 shares of a $25 stock for $250, but you pay a $15 commission to your broker, then that represents 6 percent of your investment, which is rather costly. (15 divided by 250 is 0.06, or 6 percent.) Your investment would have to grow by 6 percent before you’d break even – and that might take a while.

Aim to pay 2 percent or less in commissions. If you buy $1,000 of stock in a company and pay a $15 commission, that’s less than 2 percent. Many brokerages these days charge commissions of $10 or less per trade.

My dumbest investment

My dumbest investment was buying shares of Priceline Group for around $16 soon after the company’s initial public offering – and then selling them for $160 apiece just a few months later. – R., online

The Fool responds: That certainly seems like an excellent dumb investment, since your investment apparently increased in value tenfold! But we know what you mean, since the stock has risen a lot since then – with a recent price of about $2,175. (That reflects a 2003 1-for-6 reverse split, so a comparable, split-adjusted price for you would be about $362 – which still stings.)

You were lucky to get your shares at their initial price of $16 per share, since it’s typically just well-connected people and institutions who get those shares in an IPO, with the rest of us scrambling to buy in the open market, often after the price has surged. Priceline’s shares began trading at $81, reflecting an immediate 500 percent gain – though they ended their first day around $69.

In general, it’s best to avoid IPOs entirely, giving them a year or two to settle down. Many will end up at lower prices.

Note that Priceline bought the European hotel booking site Booking.com in 2005, and it has been so successful that it’s now the company’s biggest brand and profit generator, so much so that Priceline Group recently renamed itself Booking Holdings.


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