This is proving to be a tough 2018 for shares of fast-food giant McDonald's Corp. (MCD) .
Since the calendar flipped to January, McDonald's has shed almost 6% of its market value on a price basis, while the rest of the S&P 500 has clawed its way about 3.6% higher overall. That's a pretty glaring performance gap, particularly following a sharp correction in February that had most investors rethinking what they own.
But, if you're planning a portfolio for retirement, McDonald's needs to be in it.
In a lot of ways, McDonald's is the prototypical blue-chip stock. It's a huge company that pays a tidy dividend check to investors every quarter (a 2.5% indicated yield at current price levels), but the golden arches also come with some business peculiarities that make it a great name to own for retirement.
For instance, most investors know that McDonald's operates under the franchise model. Approximately 80% of McDonald's restaurants are owned and operated by franchisees. That creates a model that provides more operating leverage for McDonald's than the typical company-owned chain.
Fewer investors know that McDonald's also owns the land under 45% of its restaurants.
That adds up to more than $5.5 billion in land assets that provide McDonald's with a key competitive advantage and the ability to generate returns on a relatively stable capital investment base.
McDonald's franchise model and bargain-priced positioning were major factors the firm's ability to generate consistent cash generation performance during the financial crisis of 2008 -- and one of the reasons that it was one of the few Dow components to actually end that year with a higher share price than it started.
Another side-effect of that consistent cash generation that's key for retirement investors is a consistent cash dividend.
Currently, McDonald's pays out a $1.01 per share dividend that works out to a 2.5% yield at current price levels. That's a solid payout in this low-rate environment, but even more important is the fact that McDonald's has been extremely consistent about growing that dividend at a consistent growth rate since 2008.
McDonald's dividend is up almost 170% in the last decade, a stat that's only masked by the fact that its share price is up even more over that time frame. Still, McDonald's income stock status has been a core contributor to its total returns in that span of time; while McDonald's is up 198% in the last 10 years, reinvesting dividends bring those returns to almost 300%.
New initiatives have the chance to move the growth needle for McDonald's.
The firm is raising prices and introducing new upmarket offerings (like fresh beef and delivery). The net effect should be higher margins and even more cash for shareholders.
For retirement investors, McDonald's financial profile makes it a stellar core holding. Look at 2018's recent weakness as a buying opportunity -- momentum has been turning back in buyers' favor in March. And like the chain's inexplicably popular Shamrock shake, these prices are probably only available for a limited time.