McDonald’s (MCD) is the world’s largest and oldest fast-food franchise. There are close to 40,000 locations in America and other countries.

Recently, the company joined several publicly-listed companies to take steps to help investors protect themselves from inflation.

The company first increased its dividend by 7 percent to 1.38 per shares. This is well over the inflation rate of 5% per annum.

It also resumed the share repurchase programme. Stock repurchases, which are generally bullish on a company’s stock shares, could also offer investors protection from inflation. Bullish about the stock. (See MCD stock charts on TipRanks)

A Bullish Strategy

Dividend hikes make shares more appealing to conservative investors, who want to collect income while holding on to a company’s shares.

Stock repurchases lower the volume of shares traded in the market and raise the stock ownership stake for existing stockholders.

Stock repurchases can also signal that shares of the company are not valued enough and may be a sign of “confidence” in its future.

An Enduring Franchise

McDonald’s is a franchise that has endured the challenges of time through “collective entrepreneurship,” which allows its franchisee-members, management, and shareholders to share the risks and rewards from discovering and exploiting new business opportunities.

It’s an established business model and a standard for all franchise organizations.

MCD’s ability to adapt and innovate allowed it to meet the diverse needs of many consumer markets, including the growing baby-boomer and global markets of the 1970s and 1990s as well as the demands of the current millennial market.

Wall Street’s Take

Wall Street has noticed McDonald’s enduring advantage, making its shares a big winner over the five decades it has been a public company.

According to research firm S&P Capital IQ, McDonald’s shares have returned almost 17%, on average, annually, compared to the S&P’s average return of about 11% per year. But, the shares are still below the broader market YTD.

That situation may change soon, as the dividend hikes and stock repurchases will draw Wall Street’s attention to the company’s growing free cash flow — the difference between operating cash flow and capital expenditures. According to Macrotrends McDonald’s’ free cash flow increased by 13.5% in 2017, 34.11% in 2018 and 21.9 percent in 2019, according to the company.

TipRanks rates McDonald’s as a Smart Score 9/10, citing strong technicals and higher hedge fund activity.

McDonald’s enjoys a large analyst base. Based on 21 Buys and three Holds in the last three months, they have rated McDonald’s shares as a Strong Buy.

An average MCD price target value of $267.87 indicates upside potential for 9.8%.

Bottom Line 

McDonald’s is an enduring franchise with strong free cash flow to finance dividend hikes and share repurchases, to protect investors from inflation and deliver superior market returns.

Disclosure: At the time of publication, Panos Mourdoukoutas owned shares of McDonald’s (NYSE:).

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