It looks as though the second quarter of 2018 has gotten off to a disastrous start. Major markets are facing extreme volatility amid serious threats of a trade war between the world’s two largest economies—the U.S. and China.
This is coming at a time when large-cap tech stocks, which led the markets to record highs last year, are unlikely to repeat their performance this year. Amid this turmoil, for new investors whose objective is to build a nest egg by accruing a slow but steady income stream, picking appropriate stocks has become much more challenging.
For this type of investor, one of the best and safest strategies is buying “boring” companies. Research has shown that in the long run, stocks with low volatility and modest but steady growth models generally outperform growth stocks. Equities such as utilities, consumer staples and energy sector shares, provide risk-adjusted returns, consistent dividends and steady earnings growth regardless of the state of the stock market.
If you’re in for the long-haul, with an eye toward building your retirement income, then this current market roller-coaster shouldn’t bother you. In this environment, the way to go is to scout for bargains in companies with strong competitive advantages.
With that theme in mind, here's my all-time favorite stock. You can buy and hold it without worrying too much about the market's direction.
McDonald’s Corporation
McDonald’s (NYSE:MCD) is a dividend stock you could hold on to for the next 50 years. My logic for such a bold call is simple: as long as McDonald’s continues to pump out burgers you can be sure you'll be receiving your dividends. And I don’t see that changing in any way for the foreseeable future.
Some of the most trustworthy names in the dividend world are the ones which sell very basic things like soda, electricity and cigarettes. These boring businesses rarely make the headlines in the financial press, but savvy long-term investors have quietly been milking them every quarter for hefty payouts.
In this particular case, McDonald’s has raised its dividend each and every year since the company began paying its first dividend in 1976, proving its global fast food business has the power to churn out cash no matter the economic or retail environment—whether it's recessions, market turmoil or shifting consumer food preferences. That’s the reason some investors call these businesses “forever assets,” meaning you don’t buy them to sell.
For McDonald’s, the company's global scale and ongoing innovation are some of the key advantages that put them ahead of competitors, with a pretty big moat. Last year, the company did $91 billion in system-wide sales, more than double that of its nearest competitor, Kentucky Fried Chicken (NYSE:YUM). According to Forbes, McDonald’s is currently the seventh most valuable brand in the world, with a brand value of $37.4 billion. By the end of last year, McDonald’s was running 37,241 restaurants worldwide, including 14,036 in the U.S. and 23,205 globally.
As part of Chief Executive Steve Easterbrook's turnaround strategy, McDonald’s has been winning market share back through a variety of initiatives during the last few years.That pushed its shares to all-time highs early this year.
The major part of the company’s growth strategy is to move away from restaurant ownership and grow their franchising. Already, 80% of McDonald's restaurants are owned and operated by franchisees, but the company wants to increase that number to over 90% by the end of 2018 and ultimately to 95% as part of its cost-cutting efforts.
The Bottom Line
Currently trading at $161.77 as of yesterday's close, MCD shares are down about 9% from their 52-week high. I think this dip offers a good buying opportunity for long-term investors looking to add a solid dividend-paying stock to their portfolio.
McDonald’s pays quarterly dividends of $1.01 per share. At its current price, that translates to an annual dividend yield of 2.57%. While the yield may not look that exciting to some investors, remember when you buy a stock such as McDonald’s, you're doing so because you hate uncertainty. Your investment objective is to get paid each quarter through dividends and buybacks. And McDonald’s has been doing exactly that for multiple decades.