Some top-notch dividend stocks with high yields are worth loading up on, provided you’ve put in the homework and are ready to tackle the risks that lie ahead. With markets running hot, it’s easy to return to a risk-on mindset.
In any case, this piece will have a closer look at one intriguing dividend stock that I think could make for a fantastic buy for investors seeking deeper value in a market that, believe it or not, still has quite a few bargains mixed in with the red-hot names that have been powering much of the gains in the S&P 500 and TSX Index.
Enter shares of fast-food icon McDonald’s (NYSE: MCD), which recently cratered following a quarterly earnings report that didn’t quite live up to the expectations of investors. While the numbers weren’t terrible, there’s a fear that the chain may have raised prices enough to lose some customers, especially those who are more price-sensitive.
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McDonald’s stock looks interesting
The Big Mac combo has certainly become a tad of a splurge for some nowadays. Beef is getting pricier, and with higher energy prices, it’s tough to avoid the inflationary hit.
So, why look at McDonald’s stock while it has fallen out of favour, now down 17% (that’s quite rare for a name as steady as MCD) when shares of Restaurant Brands International (TSX: QSR) are firing on all cylinders? I think that everything Restaurant Brands is doing right can be replicated by McDonald’s.
At the end of the day, McDonald’s is one of the most innovative fast-food companies. But the company can’t rely on menu innovation alone, especially since prices are scaring off some consumers. It needs to get serious about offering more for less, even if it means sacrificing a bit of margin. Personally, I’d look to incorporate physical AI tech as one of the areas that could add a bit more value to consumers. Now, robots and AI aren’t coming to rescue MCD stock anytime soon, though.
It could take some time before robots make your next Big Mac meal a bit less expensive, but I do think that the rise of robotics is the real deal. And you can be sure that McDonald’s will probably explore the potential at some point over the next decade and beyond, whenever the technology proves there’s serious ROI to be had.
Until then, look for McValue 2.0, the loyalty program, and intriguing merchandise and adult Happy Meals to help win back customers who’ve gone elsewhere, likely to a cheaper chain.
Bottom line
At the end of the day, it’s a tough balance to make: does one drive more sales at the cost of margin? Or does one take the sales hit to preserve margins? I think we’ve come to a point where the former might make a lot of sense. McValue hasn’t quite lived up to expectations quite yet. But it can and probably will in due time, which is why I’d stay the course with a premium fast-food chain that’s now going for a reasonable multiple. McDonald’s isn’t going anywhere. Times are tough, but I’m betting on management’s ability to power a comeback. The firm knows what diners want (not just good value, but excellent, market-leading value), and it needs to go all-in to give it to them.
With a nice 2.7% dividend yield, which is on the high side for MCD, I think buying and holding on the dip is the move.
