McDonald’s vs Domino’s Stock: Which Is Best?

The pandemic might have changed how people work, learn, and play, but one fact remains constant: people are busy. There’s always more to do than hours in a day, and traditional family meals cooked from scratch are often the exception, rather than the rule. 

Fast food has been a popular way to manage hunger on the go for decades. When it can be delivered to the doorstep in less time than it takes to make a sandwich, it’s a tempting alternative to making a mess in the kitchen. 

Quick-service restaurant giants McDonald’s and Domino’s have cornered their respective markets – burgers and pizza – by filling the need for easy, inexpensive meals that are ready in minutes. Both are leading brands, and both have leveraged changes wrought by the pandemic to grow their business.

However, from an investment perspective, the companies have stark differences. That has investors asking – McDonald’s vs. Domino’s stock: which is best? 

Does McDonald’s Stock Pay A Dividend? 

Dick and Mac McDonald started their company with a limited menu – $0.15 hamburgers, fries, and shakes – and they quickly perfected the Speedee Service System that formed the foundation of today’s fast-food industry. That single restaurant started a trend, and within just a few years, the brothers started to sell franchise licenses. 

In the 65 years since, McDonald’s has grown to more than 39,000 locations in at least 100 nations and territories worldwide. COVID-19 prompted the company to expand its digital and delivery strategies, which have succeeded in offsetting the damage done by slowed sales early during the health crisis. 

For the past 45 years, McDonald’s has paid steadily increasing dividends to shareholders. McDonald’s is considered a Dividend Aristocrat, which refers to an elite group of companies that have increased dividends for 25 or more consecutive years. 

McDonald’s paid out its first dividend to shareholders in 1976, and it has increased dividends every subsequent year. Today, its dividend yield is 2.12 percent, and its annual dividend is $5.52 per share.

Is McDonald’s Stock a Buy? 

If there is one thing McDonald’s can be counted on for, it is operating profit margin. The company has steadily increased its operating profit margin, which is now around 42 percent. That marks a 12 percent rise over the 30 percent operating profit margin McDonald’s reported a decade ago. 

As the largest fast-food restaurant chain in the world, McDonald’s sheer size allows it to leverage economies of scale. The fact that a large percentage of its restaurants are franchise-owned and operated makes it easier for the company to grow because capital expenditures – the biggest costs associated with expansion – are the responsibility of franchisees. 

True, McDonald’s overall revenue is on a slight decline. In the past ten years, revenue has decreased by a compound annual rate of 1.5 percent. However, that doesn’t have investors and analysts especially concerned. A majority of analysts have rated McDonald’s stock a buy, with 12-month targets ranging from $260 to $306 per share (median $282 per share). 

In short, those looking for a stock that can be counted upon for steady long-term growth and increasing dividends should consider McDonald’s stock a buy.  

Is Domino’s Overvalued? 

The first Domino’s pizza restaurant opened in 1960. Of course, at that time, it was known as DomiNick’s. It didn’t adopt its current name until 1965.

In 1967, the first Domino’s franchise was launched. Today, there are more than 5,600 US locations and another 12,200+ worldwide, making Domino’s the largest pizza chain in the world. A full 98 percent of those shops are owned by independent franchisees. 

Domino’s was prepared for virtual lifestyles long before anyone heard of COVID-19. It has always offered delivery service, and when delivery became the rule rather than the exception, Domino’s was the first choice for a quick meal. 

That has contributed to Domino’s ability to grow profits, which in turn attracted investor enthusiasm, driving Domino’s stock prices up. However, it seems that there is trouble ahead – inflation has impacted the cost of food in a major way. When combined with the current labor shortages, it is unclear whether Domino’s can sustain its growth trajectory in the short term. 

These issues have investors questioning whether Domino’s can deliver consistently high profits, and some have started to sell shares. Domino’s stock price has dropped approximately 22 percent year-to-date, putting it in more reasonable territory from a valuation perspective. 

Though Domino’s stock price is still a bit on the high side, it is safe to say Domino’s stock isn’t overvalued, given the recent decline. The next earnings call will offer more clarity into the most appropriate valuation for the company. 

Is Domino’s A Dividend Stock? 

Domino’s is a dividend stock with a current yield of 0.85 percent. For 2021, the annual dividend came in at $3.76 per share. 

Domino’s released its Q3 2021 results, which prompted a sudden drop in Domino’s stock price. Results were mixed, but there was more good news than bad. Highlights included: 

• Sales (Global) – 8.5 percent growth (excluding foreign currency impact)
• Same-Store Sales (US) – 1.9 percent decline year-over-year 
• Same-Store Sales (International) – 8.8 percent growth (111th consecutive quarter of growth)  
• Net Store Growth (Global) – 323 (US 45/278 International) 
• Diluted Earnings Per Share – 30.1 percent increase/total $3.24

Over the course of the quarter, Domino’s continued its focus on expanding the digital channels that were exceptionally successful in 2020.

New ordering platforms gained traction, including options ordering through Facebook Messenger, Apple Watch, Google Home, Amazon Echo, and Twitter. The company also continued its rollout of Domino’s Carside Delivery – the equivalent of a pizza drive-thru. 

Will Domino’s Stock Go Up? 

Domino’s has a lot to look forward to. Many industry experts believe that it can grow market share considerably in coming years, and there is plenty of room to add international locations. Carryout is increasing in popularity, which cuts down on Domino’s costs. 

More importantly, Domino’s business model is conducive to ongoing profit increases. There is no capital expenditure associated with opening new shops, and Domino’s isn’t responsible for employing and monitoring managers for franchise restaurants.

In fact, the company only has to do two things – develop, fine-tune, and execute strategic plans and collect franchise fees and commissions. 

Inflation and labor shortages won’t last forever. Action is already being taken to resolve both issues on a national scale. Domino’s stock could drop further short-term, which is why most analysts have rated it as “hold,” but when it reaches its floor, it will be time to buy. 

Overall, analysts are confident Domino’s stock will go up, reaching between $468 and $642 per share (median $521 per share) over the next 12 months. 

Domino’s Stock vs. McDonald’s Stock: Which Is Best? 

Domino’s stock has increased roughly 1,300 percent over the past ten years, as compared to McDonald’s stock growth of approximately 160 percent for the same period.

Most analysts agree that this disparity is due to Domino’s ability to outperform McDonald’s in most key metrics. Yes, McDonald’s is much more effective in managing operating profit margin, but Domino’s has been far more successful in growing overall profits. That’s appealing to investors. 

The decision between McDonald’s vs. Domino’s stock comes down to investment horizon and overall style. McDonald’s is most likely to return reliable profits and growing dividends, both short-term and long-term. However, those returns are likely to be lower than Domino’s if Domino’s overcomes its current challenges. 

The bottom line is that Domino’s is likely to go a bit lower before it resumes its growth trajectory, making McDonald’s a smarter buy today. Once both companies have released their full-year 2021 earnings and 2022 guidance, that could change. Domino’s stock is on the cusp of resuming its position as the more rapidly growing asset. 

#1 Stock For The Next 7 Days

When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.

Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.

See The #1 Stock Now >>