MC Donalds (WKN: 856958) and PepsiCo (WKN: 851995) are believed to be two of the most famous companies in the world – and the most controversial. The burger chain is constantly criticized because of its not exactly healthy menu selection. Not to mention Pepsi. Nevertheless, both companies have been very good investments in recent years.
PepsiCo is expected to end 2019 with the strongest sales growth since 2011. The McDonald’s stock price even hit its all-time high this summer. Of course, you can look at it differently. PepsiCo is only generating 4% organic sales growth this year, even though it will be the first time since 2011 that PepsiCo has grown its business better than 2%. McDonald’s stocks have fallen 11% since their high, although the market has generally moved up. But which share should you choose if you want to invest today?
A drink goes around the world
PepsiCo has been stopping since 2011. After years of sales growth of less than 2%, including three years of decline, PepsiCo’s annual sales are just below the $ 66.5 billion it recorded in 2011.
Relatively speaking, however, healthier growth has recently been achieved. Revenue rose 3.1% in the first nine months of the year, up 4.3% over the last quarter of the year. Sales of sugary carbonated beverages have decreased in recent years, but the flavor of the flavored water market has helped offset some of the decline. PepsiCo’s broader reach in other areas of the grocery via Frito-Lay and Quaker offers the group the all-important diversification.
The path in the company’s income statement is often complicated due to global uncertainties and the shift in product lines, but pre-tax profit is slightly above the 2011 level. Nevertheless, dividend investors have received growing payouts. When PepsiCo increased its quarterly payout in July, it meant the company had increased its dividend for 47 years in a row.
McDonald’s is also anything but bad. The recent dividend increase means that the dividend has been increased 43 years in a row. But – similar to PepsiCo – the results have not been impressive in recent years. Earnings have dropped every year since peaking in 2013 – but there’s a good explanation for that.
McDonald’s has given its own locations to franchisees, which means lower royalties and franchise fees instead of revenue. Margins are increasing, but pre-tax profit remains stable given shrinking earnings. The advantage is that the refresh is more likely to pass the risk on to third parties.
The growth of both companies will not inspire you, even if analysts see a return to more profits for McDonald’s next year and PepsiCo should record the best sales increase since 2011. The dividend yield – PepsiCo at 2.8% and McDonald’s at 2.5% – is predictably stable.
In the end, I’ll still choose McDonald’s, mostly because the company has the clearest short-term catalysts that can drive profits. The fast food giant is leading the way in seizing the opportunities offered by third-party delivery apps. It is of course nice to pass the delivery costs on to these young companies, precisely because more and more customers are accessing this convenience.
That the numbers of both companies look better again makes you feel good for both. But McDonald’s seems to be the better choice if you want to beat the market in 2020.
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The Motley Fool does not own any of the stocks listed. Rick Munarriz does not own any of the stocks listed.
This article appeared on 12/27/19 on Fool.com and was translated for our German readers.
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