McDonald’s (NYSE: MCD) has delivered market-beating returns over the past 25 years, largely because of its franchise-focused business model. A $1,000 investment in the consumer discretionary stock 25 years ago would be worth $16,670 today.
About $10,000 of that gain came from dividends, while McDonald’s stock itself slightly underperformed the S&P 500 over the same period. The company began paying a dividend in 1976 and has increased it every year since.
How McDonald’s franchising model drives returns
Most McDonald’s restaurants are franchised, giving the company a more asset-light structure than restaurant operators such as Chipotle, which owns and operates all of its locations.
Franchising is common across the restaurant industry, but McDonald’s places particular emphasis on brand consistency. Its revenue depends heavily on fees paid by franchisees, including a 4%-5% fee on sales and a minimum 4% fee for advertising and promotions.
McDonald’s also owns the building at every restaurant. That means it continues to collect rent even when a location’s fast-food operations slow. This real estate component helps the company generate relatively steady revenue across different economic conditions.
McDonald’s has expanded its footprint to more than 45,000 restaurants in more than 100 countries. That scale may raise concerns about market saturation, but higher rents and population growth could continue to support expansion. The company’s business model may therefore keep driving stock-price appreciation and dividend growth for years to come.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends the following options: long January 2028 $320 calls on McDonald’s, short January 2028 $340 calls on McDonald’s, and short September 2026 $35 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Source: finance.yahoo.com
