What's in Store for McDonald's in 2012?

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The new year is here and that means that it's a perfect time to sit down with some of the stocks you own -- or, perhaps, are thinking about buying -- to figure out what 2012 may bring.

Today I'm going to take a look at McDonald's (NYS: MCD) , the global fast-food king that easily outpaced the rest of the market in 2011. Could 2012 be another year of cheer for Mickey D's investors? Let's dig in.

The tale of the tape

Market Cap$103 billion
Dividend Yield2.8%
Trailing Price-to-Earnings19.7
Forward Price-to-Earnings17.6
Expected Five-Year Growth10%

Source: S&P Capital IQ.

The keys for 2012
Investors will obviously want to keep an eye on all facets of McDonald's as it forges ahead, but I think there are three areas that deserve extra focus: the economy, growth initiatives, and the stock's valuation.

Let's get the simple one out of the way first. If we're being kind, we could say that the world economy is "sluggish." There may actually be some advantages to that for McDonald's. As the company continues to push its McCafe line, a tougher economy makes it easier for it to poach customers from the higher-priced Starbucks (NAS: SBUX) . To be sure, Starbucks' 2011 looked distinctly positive next to some stumbles in previous years, but its beverages still carry a premium price tag and are a target for McDonald's -- or Dunkin' Brands for that matter -- if the economy doesn't pick back up.

Similarly, strapped consumers may be forced to pass up sit-down dining at Darden's (NYS: DRI) restaurants or Red Robin (NAS: RRGB) in favor of a quicker, cheaper meal under the Golden Arches. Some of the struggles may be restaurant-specific. Darden's Olive Garden, for instance, has had some missteps in the past year, including some promotional misfires. But I have little doubt that the economy has been causing many diners to opt for cheaper fare. Red Robin is well off from its 52-week high but still up over 30% for the last 12 months.

In other words, what's a challenge for those higher-end establishments could be an opportunity for McDonald's. But let's be serious here: If we want the best performance possible out of the company, we're going to want a stronger economy, and that means both at home and in Europe, where McDonald's gets roughly 40% of its revenue.

Speaking of performance, investors will want to keep a close eye on the success of McDonald's expansion efforts in 2012. The company is targeting roughly 1,300 new restaurants during the year, with about half going into emerging markets and as many as 250 in China specifically. Fast-food competitor Yum! Brands (NYS: YUM) has put a foot down in a big way in China and investors have been rewarded for that effort. McDonald's management believes it's under-penetrated in emerging markets, so this could be an area of significant opportunity for the company.

That said, growth, particularly in new or under-penetrated markets, needs to be handled carefully. Longtime Starbucks followers can no doubt speak to the danger of overexpansion.

Finally, investors -- particularly those who aren't already McDonald's owners -- need to consider the stock's valuation. Last year's yummy stock outperformance was driven in large part by an expansion in the valuation multiple that investors were willing to pay. As a current owner myself, I'm OK with holding at the current valuation -- and keeping it as an "outperform" in my Motley Fool CAPS portfolio. However, if the valuation continues to creep up in 2012, my finger may slide ever closer to that sell button.

The one number I love
One reason that I'm happy to continue owning McDonald's despite the premium valuation is the company's commitment to dividends. For decades now, without skipping a beat, McDonald's has rewarded investors by not only paying, but raising its dividend. Of course Mickey D's isn't the only great dividend payer you can buy. 

You can find a bunch of other high-quality dividends in The Motley Fool's special report "Secure Your Future With 11 Rock-Solid Dividend Stocks."

At the time this article was published Fool contributor Matt Koppenheffer owns shares of McDonald's, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye. The Motley Fool owns shares of Yum! Brands, Darden Restaurants, Red Robin Gourmet Burgers, and Starbucks. Motley Fool newsletter services have recommended buying shares of Yum! Brands, McDonald's, and Starbucks. Motley Fool newsletter services have recommended writing covered calls in Red Robin Gourmet Burgers. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.  

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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