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Adding McDonald’s DRIP Plan To My Overall Investment Picture

24 March 2010 4 Comments

I have been wanting to be a shareholder of McDonald’s Corporation (MCD) for some time, and decided rather than wait for a pullback or attractive entry point, I would instead setup a DRIP plan.

Why I Like McDonald’s

First, McDonald’s has an excellent history of increasing its dividends.  Currently, the dividend is doubling about every four years.  This is the perfect stock to accumulate over time (and reinvest its dividends).  With regards to the business, McDonald’s is the cheapest meal in America (and other countries).  I believe the consumer will continue to be weak in the years ahead and McDonald’s should do just fine in that environment.

About DRIP Plans

DRIP plans allow you to buy shares directly from the company and automatically reinvest the dividends.  Because you’re purchasing shares directly, it is (in some cases) cheaper than going through a broker.  For example, with the MCD DRIP, the transaction fee for an automatic withdrawal situation is $1.50 per transaction.  This is very cheap.

Companies want investors to use DRIP plans because it encourages long term ownership in a company.  From an individual investor’s perspective, a DRIP plan is good because you can set it up to automatically invest money every month directly from your bank account (as little as $50 each month for MCD).  You can even bypass the minimum startup amount ($500) if you setup the auto-invest method.

I’ve talked before how I don’t like blind investing month after month.  This is true, except when it’s a solid company with increasing dividends (which McDonald’s is).  Investing $100 a month in McDonald’s is different than the broad market, because I’m focused on yield and cash flow versus long term appreciation.

With my current setup, I’m investing very little on a month to month basis, but it’s a decent start.  If the market corrects, I’ll likely boost that amount to accumulate more shares at a lower price.

You can get more information about McDonald’s DRIP plan by clicking here.


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