McDonald's Unlikely Success: Franchising and Real Estate Drive Market-Beating Returns

McDonald's has been a market-beating stock over the last 25 years due to its unique approach to franchising. The company owns the buildings for every McDonald's restaurant, which means it still receives rent even if sales are slow. This asset-light business model allows McDonald's to benefit from steady revenue regardless of economic conditions.

The majority of McDonald's restaurants are franchises, with the company earning a 4-5% fee on sales and a minimum 4% fee for advertising and promotions. Additionally, McDonald's has expanded to over 45,000 restaurants across more than 100 countries, sparking concerns about global saturation. However, rising rents and an increasing population can still help the company expand.

Investors who put $1,000 into McDonald's 25 years ago would have around $16,670 today. Interestingly, over $10,000 of that return came from dividends, while the stock itself slightly underperformed the S&P 500 during that period. The company initiated its dividend in 1976 and has raised it every year since.