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McDonald’s Plans Up to $20 Billion in Buybacks, Dividends

Customers Order at a McDonald's in New York
McDonald’s shares have languished as the company struggles to increase sales amid shaky consumer confidence and heightened competition from fast-food rivals. Photographer: Michael Nagle/Bloomberg

McDonald’s Corp. set a target of returning as much as $20 billion in cash to investors through dividends and share buybacks by 2016, dashing optimism that the company would spend even more to boost its stagnant shares.

The plan represents as much as a 20 percent increase from the amount of cash returned in 2011 through 2013, the Oak Brook, Illinois-based company said today in a statement. McDonald’s also said it plans to sell 1,500 company-owned stores to franchisees by 2016, primarily in Europe, the Middle East, Africa and its Asia-Pacific region.

McDonald’s shares have languished as the company struggles to increase sales amid shaky consumer confidence and heightened competition from fast-food rivals. Chief Financial Officer Pete Bensen said in March that the company could be “more aggressive” in borrowing to fund buybacks and dividends.

“The magnitude here is not significant enough to really move the needle,” Peter Saleh, an analyst at Telsey Advisory Group in New York, said in an interview. While the $18 billion to $20 billion in shareholder returns is “in line” with expectations, “it doesn’t get anyone overly excited.”

McDonald’s shares fell 1 percent to $101.30 at the close in New York. The stock has gained 0.1 percent in the past 12 months, compared with a 15 percent increase in the Standard & Poor’s 500 Index.

Cash Hoard

U.S. corporations are starting to put some of their $2 trillion in cash and marketable securities to work, according to data compiled by Bloomberg on about 2,300 nonfinancial companies in the Russell 3000 stock index.

Announced corporate buying -- a combination of new cash takeovers and new stock buybacks -- rose to a five-month high of $80.5 billion in April, according to data from TrimTabs Investment Research Inc. That month’s figure included a $30 billion repurchase-plan boost from Apple Inc. The buyback trend then slowed in May, TrimTabs Chief Executive Officer David Santschi said in an interview.

McDonald’s posted first-quarter profit last month that trailed analysts’ estimates as sales at its established U.S. locations fell. The company had reported five straight months of declining sales at U.S. stores open at least 13 months, before ending the streak with unchanged sales in April.

While CEO Don Thompson has tried attracting customers with free coffee and new burgers and chicken sandwiches, the competition also has been introducing new fare. Burger King Worldwide Inc. has recently started selling new $1 sandwiches, while Taco Bell is now selling breakfast items, such as sausage burritos, nationwide.

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