As we muddle through in this pandemic year, the economy has evolved with three distinct tiers.
One is in depression, including such areas as travel, tourism, aviation, aerospace and live entertainment. CAE and Walt Disney are good examples.
Another, including banks and financial services and some bricks and mortar retailers are muddling through. You can add fast food restaurants to this group.
This is a muddle through group, with some parts of the business doing well and others struggling. Revenue and profits are soft, but still support dividends.
McDonald’s (NYSE: MCD) the world’s largest fast food company, is a good example.
McDonald’s has 337,000 restaurants in 120 countries. More than 44% of its outlets are in Asia, or other emerging markets.
Like other restaurants, Macdonald’s was pummeled this spring. A quarter of its stores globally were forced to close, and franchisees needed help. From the stock market’s peak on Feb. 19 through its low on March 23, McDonald’s stock fell 36%.
But as lockdowns have eased, things have improved. Drive through traffic has been brisk, showing how much we crave the comfort of normal routines and familiar products. A slimmed down menu and online ordering and pickup have played to McDonald’s strengths, reinforcing its image as a fast, reliable, and satisfying choice.
McDonalds has benefitted from the recovery in fast food generally. Many consumers are tired of cooking and want the comfort of a Big Mac. Americans (its biggest market) are back in their cars with a preference for takeout. McDonald’s has a strong value proposition: In a weak economy, consumers are more careful in their spending.
In its latest quarter, reported at the end of July, global sales fell by a third and profit by 78%, yet the shares have moved steadily higher since.
CEO Chris Kempczinski said there was continuous improvement as the quarter progressed, which looked set to continue. He said a strong drive through presence and investments made in delivery and digital over the past few years have strengthened its hand.
McDonald’s will likely break off its 43-year string of dividend increases, but its payment yields 2.27% at current prices.
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