McDonald's (MCD -1.60%) is coming off a tough year in 2024. But that's really only part of the story for a stock that simply hasn't been a good buy for a while now. Last year was just the latest one in which the popular fast food stock underperformed the market. Now, in five of the past six years, McDonald's has generated worse returns than the S&P 500.
Is the stock likely to underperform again in 2025, or are there reasons for investors to be more bullish on the business in the new year? Is it time for investors to look elsewhere for good blue chip investments to buy and hold, or does it still make sense for McDonald's stock to have a place in your portfolio?
McDonald's is a stock that you might think is a good buy-and-forget investment to own. But you might be disappointed with the results from owning the stock in recent years. Here's how McDonald's stock has done compared to the S&P 500, which tracks 500 of the largest publicly traded companies in the world.
| Year | MCD Stock | S&P 500 |
|---|---|---|
| 2024 | -2.2% | 23.3% |
| 2023 | 12.5% | 24.2% |
| 2022 | -1.7% | -19.4% |
| 2021 | 24.9% | 26.9% |
| 2020 | 8.6% | 16.3% |
| 2019 | 11.3% | 28.9% |
Data source: YCharts.
The lone year in the past six when McDonald's has generated better returns was when the markets crashed in 2022. As a defensive investment, McDonald's may have some value to investors due to its stability and the dividend income it offers (it yields 2.4%). But as an overall growth investment, it hasn't made for a good option for investors.
In the past, McDonald's has been able to push higher costs along to customers. But there does appear to be more of a pushback these days, and generating growth may not be as easy for the business anymore. In the company's most recent quarter, which ended on Sept. 30, 2024, its global comparable sales were down by 1.5%. Even in its core U.S. market, the increase was very modest at just 0.3%.
To win back customers, the company may need to be more competitive on price. But while that could theoretically boost sales, it would come at the cost of worsening margins and lower profits. McDonald's stock is currently trading at 26 times its trailing earnings, which is a fairly rich multiple for a business that may encounter challenges in growing its top and bottom lines this year.
Ultimately, I'm not convinced that there will be sufficient catalysts to make this an improved year for the business.
McDonald's hasn't been a great investment to own over the years, there's no denying that. However, that doesn't mean it shouldn't have a place in your portfolio. If you want a good dividend growth stock or an investment that can provide you with some stability, there's still value in holding on to it. Not every investment in your portfolio needs to be a growth stock with tremendous future prospects.
Over the past five years, shares of McDonald's have risen by 47%, and that climbs to 65% when including its dividend. If you want a safe investment that you can rely on for dividend income, McDonald's can still make a lot of sense to hold on to. But if you're expecting this to be a market-beating growth stock or for 2025 to not be another bumpy year for McDonald's, then you might be disappointed. As long as you know what to expect from the stock, it can still be a worthwhile investment to hang on to.
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