McDonald’s Corp. shares surged on the news that CEO Don Thompson would be stepping down. Thompson has presided over a painful period for the hamburger chain, with the stock effectively going nowhere since he took over in mid-2012. In the same period, the S&P 500 Index jumped about 50%. Investors have been bidding up McDonald’s MCD, -0.37% stock on hopes that new leadership — Steve Easterbrook — will rejuvenate the world’s second-largest fast-food chain (after Subway). Are those hopes misplaced? Thompson makes a convenient scapegoat, but it’s hard to blame him for what appears to be a systemic problem with sales and the 67-year-old brand.
Here’s why the Golden Arches are still tarnished, and why investors may want to consider using this short-term pop as a chance to sell their McDonald’s stock: Dividend growth is over: Some investors talk up the 3.7% yield and a history of dividend growth. Unfortunately, it’s unlikely that yield will rise over time. Consider that McDonald’s is currently paying $3.40 a year in dividends but projected to earn only $5.09 in earnings per share for 2015, about a 67% payout ratio. The only hope for dividend growth is profit growth. And unless something remarkable happens, profits are unlikely to increase dramatically in the next few years.
Source: Market Watch
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