Not Interested in Large-cap Stocks? Why You Should Be
Friday, January 20th, 2012
By Mitchell Clark, B.Comm. for Profit Confidential
If you want to see an outstanding performance from a large-cap stock, all you have to do is pull up a long-term chart on McDonald’s Corporation (NYSE/MCD). It’s kind of odd to think that a mature business like burger flipping could be so profitable, but this company has rewarded shareholders tremendously well. This stock market performance should be studied in business schools.
For a large-cap stock and Dow Jones component, McDonald’s has appreciated steadily and with remarkable consistency since 1980. Put a ruler underneath the company’s share price and you’ll see how extraordinary its performance has been. This large-cap stock struggled in 2002/2003, but that’s about it. When the stock market collapsed in 2008 and then hit a low in March of 2009, McDonald’s basically traded flat, just below $60.00 a share. This week, it hit an all-time record high of over $101.00 per share, with a current dividend yield of 2.8%. Not bad at all if you ask me. The stock split seven times since the early 80s and is now due for another split.
A stock market performance like McDonald’s makes me think that bothering with the rest of the stock market is mostly just a waste of time. Financial markets are like a casino where the odds are stacked against you and your win is only the result of someone else’s loss.
I’ve always been a fan of investing in large-cap stocks, especially those that pay dividends. Even though I spend most of my time researching smaller companies, I’ve seen stock market portfolios with a handful of large-cap stocks create a lot of wealth for people. And the dividends compensate you for the prevailing rate of inflation and, for the most part, you sleep well at night knowing what you own. (See A Company Doesn’t Have to Be Small to Provide Big Returns.)
I don’t own shares in McDonald’s, but I wish I did. Not only is it impressive for such a large-cap stock to perform so well, but this company is renovating restaurants and expanding while other chains are struggling in this lackluster economy. The company reports its next set of financial results on January 24 and it’s a benchmark stock that I will be paying attention to.
Over the last 12 months, the stock market was flat, while McDonald’s appreciated 35% not including dividends. Over the last two years, McDonald’s appreciated 60% on the stock market and, over the last five years, the stock went up 141% not including dividends. All this proves that you can do just as well owning the right large-cap stocks as you can speculating in the latest high flyers. And you can do so with a lot less risk.