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    MARKET EDGES

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MCD raised its quarterly dividend 33% to $0.50 per share. This increase follows two prior 50% dividend increases in both 2006 and 2007. Although I have communicated the issues around MCD’s U.S. margins and the company’s ability to launch its specialty coffee beverage platform by mid 2009, I can’t refute MCD’s strong cash flow story, particularly in today’s challenging environment. MCD has consistently achieved a positive net CFFO/net income ratio, which measures the proportion of earnings yielding cash. Additionally, MCD is close to achieving its target of returning $15-$17 billion of cash to shareholders through a combination of both dividends and share repurchases in 2007-2009 (returned nearly $11 billion to date).

As I said earlier this week (“MCD – The Cost of Capital Is Rising and Access to Capital is Tighter), however, I continue to be concerned about the franchise system’s cash flows as they are forced to make a fairly big investment to convert their restaurant for the specialty beverage rollout at the same time costs are rising. And the Dollar Menu can’t be helping either!

  • MCD has consistently achieved a positive net CFFO/net income ratio, which measures the proportion of earnings yielding cash.
  • And the cash keeps growing......