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McDonald's Stock Is Past Its Prime -- Time to Throw in the Towel

Stocks in this article: MCD

NEW YORK (TheStreet) -- Like many shareholders, I have been wondering for several months now whether McDonald's (MCD) was a name worth holding. Sales trends at the fast-food giant have been tepid of late. Earnings growth has slowed. Some blame went to the slow economy in Europe over the past few years, some blame went to problems in Asia.

But, more and more frequently, one gets the feeling that the casual dining world has passed McDonald's by. Plus it seems that the company has no effective method for catching up to smaller, more nimble competitors offering healthier fare.

McDonald's shares were trading just over $101 on Thursday at 1 p.m., up nearly 0.6% for the day and 4.2% year to date. The stock is heavily shorted.

Although the stock has outperformed the S&P 500 (SPY) modestly year to date, this probably has more to do with the flight to safety from more high-flying groups earlier this year -- plus the company's 3.2% dividend yield -- than with any renewed growth expectations.

However sluggish the company's results were, many investors were probably holding on to the stock in anticipation of a new capital deployment plan.

That plan came out yesterday, May 28, and was greeted less than enthusiastically by the markets. The stock fell about 1% on a day the S&P 500 was up marginally. Volume was about 180% of normal.

The long-anticipated plan calls for the company to return $18 billion to $20 billion to shareholders from 2014 to 2016 via dividends and share buybacks. This, the company added, represented a 10% to 20% increase over the amount of cash returned between 2011 and 2013. In 2013, the company returned about $4.9 billion of its $7.1 billion of operating cash flow to shareholders. We're talking about going up to $6 billion to $6.7 billion going forward.

Big whoop!

That 10% is not enough to move the needle. While 20% seems possible, it is not assured. Much of the cash the company will redeploy is going to come from refranchising some 1,500 restaurants over the next two years, mostly in Asia-Pacific, Africa, Europe and the Middle East. Some cash will come from new debt.

Is this enough to get the stock moving upward and to the right again?

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