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Motley Fool: Made-to-order growth

While many of its peers have complained about a “restaurant recession,” McDonald’s has posted consistently strong comparable sales growth, outpacing its rivals. (Associated Press)
While many of its peers have complained about a “restaurant recession,” McDonald’s has posted consistently strong comparable sales growth, outpacing its rivals. (Associated Press)

McDonald’s (NYSE: MCD) is much more than a burger chain. Its all-day breakfast menu has threatened pancake-slinging chains, and the company is moving aggressively into the future with kiosk ordering, a revamped value menu, a delivery partnership with Uber and renovated stores; all suggest the company’s recent growth may continue.

CEO Steve Easterbrook has unlocked more profits by refranchising restaurants in China and elsewhere around the globe, and the stock has soared since he took over in 2015, with shares up 73 percent over the past three years. Refranchising has pushed the percentage of company-owned locations down to 8 percent from 19 percent at the end of 2015, reducing reported revenue but raising profit margins.

While many of its peers have complained about a “restaurant recession,” McDonald’s has posted consistently strong comparable sales growth, outpacing its rivals. Customer traffic has been growing, too.

The fast-food giant is no slouch in the dividend department, either, having raised its payout annually since 1976. Recently, it yielded 2.5 percent. McDonald’s has demonstrated that it can respond to shifting consumer tastes while maintaining – and even boosting – its profitability, earnings and direct shareholder returns. For a combination of growth, income, and security, give the Golden Arches some consideration.

Ask the Fool

Q: A stock I own split 3-for-1. How do I figure my taxable gain when I sell the shares? – L.L., Syracuse, New York

A: Imagine that you bought 100 shares for $24 (initial cost: $2,400) and they were trading at $30 before the split, for a total value of $3,000. The split gives you three shares for each one you own, so postsplit, you’ll own 300 shares, worth a third as much ($10 each), for a total of … $3,000. Not much has really changed.

For tax purposes, the “cost basis” of your purchase, which was $24 per share presplit, is now a third of what it was: $8. But if you sell, your capital gain will be the same as it was presplit. For example, selling now, your gain would be around $600 – your $3,000 in sale proceeds (less your brokerage commission cost) minus your $2,400 purchase price (plus your commission cost).

When a stock is split, dividends per share, earnings per share and other figures based on share count all get adjusted accordingly.

Q: Is “buy and hold” the best way to invest? – H.M., online

A: We prefer to think of it as buying to hold, because while you might aim to hang on forever, you should keep up with your holdings regularly – hanging on as long as they remain healthy and growing, or selling if their prospects change.

Many investors have gotten rich holding shares of great companies for decades, through ups and downs, but you should never just buy a stock and then blindly hold it for years. Superinvestor Warren Buffett has said his favorite time to sell is “never” – but that doesn’t mean he hasn’t sold stocks.

My dumbest investment

One of my dumbest investments was buying shares of Align Technology, the maker of Invisalign clear dental aligners and other products – and then selling the shares too soon.

I bought more than a decade ago, when the shares were trading for around $7, and held for a few months. After talking to several dentists (including one who was a close friend), I decided to sell when the shares were trading for about $8, moving that money into another dental-related investment that went nowhere.

The first dentist to recommend selling the stock was also the one who introduced me to Align, as he had a video ad playing nonstop on a TV in his waiting room. – R., online

The Fool responds: Ouch. As you’ve probably noticed, those shares that once traded for $7 have recently been priced above $365 per share. If you’d bought $3,000 worth of shares, they would be worth more than $156,000. No one makes all the right investment moves, though our regrettable ones do sting.

Align Technology has posted many quarters’ worth of record sales, and there’s still plenty of room for further growth, from international opportunities and from the company’s potential to treat more severe kinds of teeth misalignment. You might jump back in if you believe in its future growth – but, of course, do your own research first. (The Motley Fool owns shares of and has recommended Align Technology.)

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