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Overlook the Short-Term Woes And Think Long-Term Gains With McDonald's

Jonathan Yates

Recent market action has not been kind to McDonald's (NYSE: MCD), the global fast food restaurant giant.

Disappointing earnings, a meat scandal and a downgrade have McDonald's down for the last week, month and quarter of market action. For the year, McDonald's is off by nearly one percent. Over the same period, the Standard & Poor's 500 Index has risen by 8.55 percent -- and the Dow Jones Industrial Average is up more than 4 percent since the first of the year.

There are reasons, however, to again expect McDonald's to outperform the Dow Jones Industrial Average and the Standard & Poor's 500 Index.

International Reach

McDonald's has a global expanse that is matched by few other companies. There are more than 35,000 McDonald's restaurants in more than 100 countries around the world. Growth around the world has been a huge positive for the company in recent years, and that growth is expected to continue.

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When consumers increase discretionary income, dining out often becomes one of their first luxury items. Earnings per share growth for McDonald's next year and the next five years is expected to average around 7-8 percent. That is the same range as for the last five years. Stability like that is very comforting for an investor.

Thinking Long-Term

What long-term investors should also like is the dividend income component of McDonald's.

At present, the average dividend yield for a member of the Standard & Poor's 500 Index is around 1.8 percent. It is in that range for a member of the Dow Jones Industrial Average, too. The dividend yield for McDonald's is 3.40 percent.

McDonald's is also a "Dividend Aristocrat."

To earn that honor, a company must have increased its dividend amount annually for at least the past 25 years. That is a tremendous show of strength by a company. For the shareholder, a raise is given each year just for owning the stock.

With growth ahead projected for both the earnings per share and the dividend, the total return for McDonald's should satisfy long-term investors.

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