Mr. Buffett and his cash machine Berkshire Hathaway Inc. (NYSE:BRK-B) are on a constant search for cash-rich companies. With $43 billion (and counting) in cash, Berkshire has the time and resources to find the next iconic company to join The Coca-Cola Company (NYSE:KO) and American Express in its portfolio. But Berkshire has the luxury of being picky. It only chooses companies that fit its strict guidelines perfectly. The ideal buyout candidate must be able to generate a consistent cash flow stream, it must be a big, dominant player in its market, and it must have large enough margins of profitability. Above all, the company must always act in the best interests of shareholders – employ a share buyback program, pay hefty dividends and try to never be involved in silly, expensive acquisitions. There are only a handful of companies that meet these strict conditions. Heinz, Berkshire’s recent acquisition, passed all the above tests rather easily. But the big question is, which other big players does Mr. Buffett plan to buy before he finally retires as CEO of Berkshire?
McDonald’s Corporation (NYSE:MCD) – An ideal buyout candidate?
McDonald’s seems to present many of the traits that Berkshire is looking for. In particular:
1. McDonald’s Corporation (NYSE:MCD) has a fabulous track record of consistent earnings. Back in 2007, the company earned net income of $2.4 billion. If you fast forward six years (and many more burgers), the company has raked in net income of $5.4 billion. That’s an amazing average annual growth of 20% in net income. Even Coca Cola, the most branded consumer product in American history, has been able to increase its net income by “only” 10% annually. This makes McDonald’s achievement extremely impressive.
2. McDonald’s is giving back to its shareholders. The company has spent billions of dollars buying back its own shares and paying dividends to shareholders. McDonald’s Corporation (NYSE:MCD) share count is currently at a billion, down from 1.2 billion six years ago. Not only that, but at the same time the dividend rate has been increasing at an annual clip of 13%. In other words, the company’s shareholders are earning more for less. Even Coca Cola, Berkshire’s cornerstone company, has been increasing its annual dividend by only 8% each year.
3. McDonald’s is an iconic brand. Everyone knows what it is, and Ronald, the company’s famous clown, is one of the most recognized brands in the history of marketing. In fact, McDonald’s Corporation (NYSE:MCD) brand recognition is almost similar to that of Coke’s, according to a recent Forbes survey.