New sign of normalcy: McDonald’s resumes share buybacks

Photo by Jonathan Maze

Here’s another sign that things are back to normal at fast food chains nationwide: McDonald’s will resume share buybacks.

The Chicago-based hamburger giant said Thursday it will resume share buybacks – it also increased its quarterly cash dividend by 7% to $ 1.38 per share.

McDonald’s is not alone in resuming share buybacks. Many restaurant companies have done the same in recent months, including the owner of Burger King, Restaurant Brands International and Jack in the Box, among others.

Their return is a clear sign that companies are feeling better about their business prospects.

Overall, publicly traded U.S. companies bought $ 198.8 billion in shares in the second quarter, up 11.6% from the first quarter and 124% from the same period it a year ago, according to the S&P Dow Jones indices. Share buybacks are expected to remain high for the remainder of the year.

Companies buy back stocks and pay dividends when they have additional cash and feel confident about their business prospects. Such programs became less common last year when the pandemic hit and the economy suffered.

McDonald’s suspended its $ 15 billion share buyback program in March last year when it emerged the business would be shut down for an uncertain period. In short, McDonald’s and many other restaurant chains have chosen to accumulate money as part of a survival strategy. It also allowed the company to give operators royalties and other breaks to make sure they would stay open.

But sales returned to the burger giant, now well above 2019 levels. Profits also improved more than expected. McDonald’s earnings per share were $ 2.37 in the second quarter, for example, 12% higher than expected, according to data from financial services website Sentieo.

As such, the company chose to start repurchasing shares again.

Admittedly, the share buyback programs are hardly without criticism. By buying back stocks, companies spend more to appease wealthy investors than on things like research and development, expansion, or other business investments, or simply paying higher wages.

The Harvard Business Review, for example, said that S&P 500 companies have spent more than half of their net income on share buybacks over the past decade.

Share buybacks typically increase a company’s share price by limiting the availability of shares and spreading the profits over fewer shares. They can be effective when a company’s actions are performing worse than expected and executives want to give it a boost. Yet that is usually not the case with such programs, and indeed McDonald’s stock is trading at its all-time high.

Unsurprisingly, the biggest detractors of McDonald’s, the union-backed group Fight for $ 15, have been rushing over the company’s announcement.

“Even though my colleagues and I continue to risk our lives day in and day out to serve fries and Big Macs in the midst of a pandemic, McDonald’s has decided to go back to business as usual by playing stock market games to line their pockets. of its leaders. and shareholders, ”said Juanita Camerena, a McDonald’s employee in San Francisco and leader of the Fight for $ 15 movement, in a statement the group sent Friday.