After a powerful rally in the past year, America & # 39; s show two major food stocks – Starbucks (NASDAQ 🙂 and McDonald & # 39; s (NYSE 🙂 – some signs of peaks.
Both stocks underperformed the benchmark last month, with Starbucks losing more than 9% of its value and the shares of McDonald & # 39; s down by more than 3%.
This period of weakness comes after a remarkable run in the last five years, when these food chains rewarded their investors with super-large profits. In both cases, investors have more than doubled their money, including dividends.
Their equally impressive gain makes it a little more complicated for investors to decide which of the two stocks is worth investing in over the next five years. Here are some factors that are worth considering.
McDonald & # 39; s Tech-Driven Growth
The recent earnings performance of McDonald & # 39; s provides solid evidence that the company's technology-driven turnaround is going fast.
In the quarter that ended in June, the fast food chain recorded the fastest global sales gain in seven years. Initiatives such as all-day breakfast, including the McMuffin staple, and new products such as donut sticks help bring customers back.
That happens when the company invests heavily in new technology to compete with learning disruptors and attracts technically educated young customers who cut down on visits to restaurants and use delivery services such as Uber (NYSE 🙂 Eats.
In his latest technical initiatives, the owner of Golden Arches is testing automated kitchen appliances and voice-controlled ordering in the drive-throughs. In March, McDonald & # 39; s artificial intelligence startup acquired Dynamic Yield, with headquarters in New York and Tel Aviv, for $ 300 million. That was the largest acquisition of the group in 20 years.
Dynamic Yield technology helps identify customer needs based on previous purchases and other factors. That has encouraged the sale of items such as drinks and fries in restaurants using the technology, according to CEO Steve Easterbrook.
The solid dividends of MCD offer another reason for long-term investors to keep this share in their portfolios. After McDonald & # 39; s delivered an 8% increase in his payout early this month, he is now paying a quarterly payout of $ 1.25 per share. That was the company's 43rd consecutive annual dividend increase.
Starbucks cools down after a big run
The shares of the coffee chain that sells popular Frappuccinos and pumpkin-spiced lattes have fallen by more than 11% compared to a record high they reached on July 26. They closed at $ 88.37 on Friday.
This bearish spell began when Starbucks CFO Pat Grismer warned that the company expects fiscal earnings per share to be below its "continuous 10% growth model" by 2020
Grismer said that one-off tax breaks realized in fiscal 2019 will be a major headwind for earnings growth next year. He also said that the share buyback of around $ 2 billion that the company made in fiscal 2019 will not be there in 2020 to support its shares.
During the past quarters, Starbucks has produced earnings growth that has exceeded expectations. , Starbucks recorded the fastest global sales growth in three years, helped by strong profits in China and the US
The Seattle-based chain reported a robust 6% gain in the same store worldwide – most since 2016 and well above the 4.2% projection prepared by Consensus Metrix.
On the strategy side, Starbucks remains well on track as the chain of coffee drinkers recovers not only in its home markets, but also in China – a country that has played a central role in its growth strategy.
In the past year, the number of guests in the loyalty program has grown considerably and reached 17.2 million active members in the US, an increase of 14% on an annual basis. The result of these initiatives, combined with cost-saving measures in the supply chain, is that Starbucks continues to grow.
Like McDonald & # 39; s, the coffee maker is also a reliable income producer for its investors.
It is rare to find a dividend share that yields less than 2% that offers such impressive dividend growth. Over the past five years, Starbucks has achieved an average dividend growth of around 24% per share and with a payout ratio of around 50%, the rate of cash yields does not seem to be slowing down quickly.
We love both McDonald's and Starbucks for long-term investors. Both shares have delivered extraordinary returns in the last five years and there is no reason to believe that these giants will lose their luster in the next five years. In our opinion, a better strategy would be to take equal exposure in both stocks and to hold on to them.