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Daniel Foelber, The Motley Fool
Tue, Apr 8, 2025, 4:21 AM 6 min read
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The banal marketplace sell-off has intensified, with the Dow Jones Industrial Average and S&P 500 some down implicit 10% from their caller highs and the Nasdaq Composite down implicit 20% arsenic of this writing-- putting the growth-heavy scale successful a carnivore market.
But that doesn't mean that each stocks are going down. In fact, fast-food elephantine McDonald's (NYSE: MCD) deed an all-time precocious successful March and is up somewhat year-to-date astatine the clip of this writing.
Here's wherefore the Dow Jones constituent is good positioned to endure tariffs and wherefore the dividend banal could beryllium worthy buying now.
McDonald's isn't tariff-proof, but it tin endure a play of prolonged commercialized tensions.
McDonald's has implicit 38,000 locations successful much than 100 countries, and astir 93% of its locations are operated by autarkic concern owners. These franchisees wage McDonald's rent and royalties. In exchange, they nett from nutrient and beverage sales. It's a win-win for some parties due to the fact that McDonald's firm enjoys a comparatively hands-off attack to generating unchangeable currency travel portion franchisees payment from McDonald's marque power.
McDonald's has go truthful businesslike with its operations that it presently sports a sky-high operating borderline of 45.7%, which resembles a bundle institution similar Microsoft much truthful than a edifice chain. For comparison, see that different edifice brands similar Chipotle Mexican Grill and Starbucks have operating margins of conscionable 17.6% and 13.2%, respectively. Chipotle owns its ain stores. Starbucks owns and operates the bulk of its stores, but it besides has licensed locations. However, some companies person a much discretionary-dependent lineup of nutrient and beverages, making them much susceptible to pullbacks successful user spending and tariffs.
As you tin spot successful the chart, McDonald's gross hasn't grown overmuch implicit the past decade, but due to the fact that its operating borderline has steadily climbed, it is converting a boatload of income into operating income.
When analyzing McDonald's, it's important to recognize that firm results alteration substantially from full income astatine each locations. In 2024, systemwide sales, which see franchised locations, were $130 billion. The margins connected systemwide income aren't astir arsenic precocious arsenic what McDonald's firm is getting due to the fact that royalties and rents don't necessitate a batch of operating expenses and are truthful high-margin.
McDonald's isn't truly successful the concern of selling burgers and fries. Rather, it wants its franchisees to run profitable stores truthful they enactment successful concern and proceed paying rent and royalties, and much concern owners bargain into the McDonald's model.
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