The 2016 Bullish and Bearish Case for McDonald’s

This fast-food giant has been on fire over the past six months, and it remains a solid pick for investors seeking dividends and a degree of safety. But how will McDonald’s Corp. (NYSE: MCD) perform in 2016? It is already the world’s leading global food service retailer, with over 36,000 locations serving roughly 69 million customers in more than 100 countries each day.

24/7 Wall St. is taking a look at what the strategists and analysts on Wall Street expect for the stock market in 2016, now that 2015 has come to a close. It turns out the bull market was interrupted in 2015 as the Dow Jones Industrial Average closed out the year at 17,425.03, down 2.2% for the year. That may be hardly a reason to call a bear market ahead, but it follows six straight years of gains.

While the index performance of the Dow does not account for individual stock dividends, McDonald’s closed out 2015 at $118.14, for a gain of 30.4%, including its dividend adjustments.

For the year ahead, the consensus analyst price target from Thomson Reuters is $118.67. If the analysts are correct, the expected total return for McDonald’s would be 3.5%, if you include its dividend yield of 3.01%. Keep in mind that the expected return for 2016 is almost entirely the dividend; analysts are not projecting that much growth for the golden arches, if at all.

With 2016 off to a very bumpy start, McDonald’s shares were trading at $117.51 after a few days in the new year.
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Merrill Lynch, among other analysts, is very pleased with the efforts from new CEO Stephen Easterbrook. He has taken the bull by the horns with a strategic corporate reset by changing the menu, updating the hours breakfast is served and modernizing the restaurants.

Management prioritized dividend growth as a key element of its shareholder value proposition. McDonald’s has increased its dividend every year for the past 39 years, and this looks to continue into 2016.

Making breakfast an all-day deal was perhaps the largest boon for McDonald’s in 2015. The fast-food giant saw an immediate uptick, investors and consumers were absolutely lovin’ it.

However there are some things to watch out for now, particularly same-store sales for McDonald’s, which have flattened and in some cases fallen.

Also competition from the likes of Pizza Hut and Chipotle Mexican Grill has drawn customers away. The fast casual restaurant movement definitely has had an effect on McDonald’s operations and could prove to remain troublesome in the coming year.