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McDonald's Returns to Growth Mode


The world's leading fast-food chain reported an unexpected same-store sales gain Monday. Can it sustain its growth after a couple rough quarters?

Evolving International Menu Should Help McDonald's

Still, the company has lots of advantages that should help it make gains overseas. For one, it controls arguably the most popular brand in the world, so it should have less trouble winning over customers in these foreign countries.

In addition, as I reported in September, it's taking a page out of Yum's playbook and doing a better job of adapting its menu to local tastes. For example, it now plans to open two vegetarian-only restaurants in India, both of which will be located near important Hindu sites: in Armritsar, near the Golden Temple, and near the Vaishno Devi cave shrine in Jammu & Kashmir.

The cow is a sacred animal in India, which is something that has frustrated the company's expansion in the country and forced it to rely on a half-vegetarian menu, with chicken as the main meat.

Low Volatility, Attractive Dividend

Back in the US, the company hopes to replicate the success of the Cheddar Bacon Onion sandwich with the return of its McRib sandwich in late December. This product, which has a significant following, occupied a permanent place on the company's menu until 2005; since 2010, McDonald's has been bringing it back on a seasonal basis. It hopes the McRib will help it match up against strong results from a year ago, which were partly due to the exceptionally warm winter.

The stock is also less than half as volatile as the overall market. Its beta rating, a key measure of volatility, stands at 0.39. (A stock with a rating of 1 is as volatile as the market; greater than 1 is more volatile.)

In addition, McDonald's leads many other fast-food chains when it comes to rewarding its investors. In September, it raised its quarterly dividend by 10%, to $0.77. It has now raised its payout every year since 1976. The stock's current annual yield of 3.4% also puts it ahead of Yum (2.0%) and Domino's (3.0%). It's roughly tied with The Wendy's Company (NASDAQ:WEN).

McDonald's is also a frequent buyer of its own stock. In 2011, it repurchased 41.9 million of its shares at an average price of $80.56, for a total cost of $3.4 billion.

This article by Chad Fraser was originally published on Investing Daily.

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