I did something this week I haven't done since June of 2020: I bought shares of McDonald's (MCD).

I accumulated 10 shares in 2019-2020, with an average cost basis of $177. Then I just... stopped. Not because anything was wrong. I got stuck waiting for the "right price."

Big mistake.

I was sitting at a red light this week around 8 AM here in the Chicago suburbs staring at a corner McDonald's. I counted 5-6 cars parked in the lot and another 6-7 in the drive-thru.

At 8 in the morning. On a random Thursday.

And it hit me: there are ALWAYS people at McDonald's. Doesn't matter when you drive by. There are always cars. Always customers. Always money flowing in.

Here's where I screwed myself for five years.

My cost basis was $177, so I kept thinking "I'll buy more when it gets back under $200."

Dumb. Really dumb.

The stock hasn't been under $200 in five years. Why? Because McDonald's has grown. They're more profitable. They've bought back millions of shares. Their earnings are way higher.

Why would the stock price go backward when the business keeps moving forward? It wouldn't. That's why I've been sitting on only 10 shares while the stock climbed from $177 to a recent 52-week high of $354.

I made a video about Peter Lynch's quote: If a company has no debt, it's impossible for it to go bankrupt. So I checked McDonald's balance sheet:

Assets: $59.6 billion
Liabilities: $62.3 billion

They have MORE liabilities than assets and long-term debt than cash? That looks terrible.

But check this out...

McDonald's Is Actually a Real Estate Company

Back in 1956, Harry Sonneborn told Ray Kroc: "You're not in the burger business. You're in the real estate business."

McDonald's owns about 56% of the land and 80% of the buildings where their restaurants sit. They buy prime corner locations, build the restaurant, then lease it to a franchisee.

The franchisee pays McDonald's:

10-16% of sales as rent
4-5% as royalties
4% for advertising

If a location makes $3 million in sales, McDonald's collects about $600,000 per year — mostly as rent. The franchisee does all the work. McDonald's just collects rent checks like clockwork.

Think Realty Income (O) or Agree Realty (ADC), except instead of Dollar General (DG), they lease to McDonald's franchisees.

McDonald's balance sheet shows their property at $25.3 billion (page 42 of the 2024 annual report).

But that's what they PAID for the properties — sometimes 30, 40, 50 years ago. Accounting rules say you keep properties at original cost, minus depreciation.

That land McDonald's bought in 1970 for $100,000? Worth $4 million today. Still shows up at $100,000 (or less).

Analysts estimate McDonald's real estate is actually worth $40-120 billion — not the $25 billion on the books.

The debt isn't so scary when they're sitting on tens of billions in hidden real estate value.

So there I was at that red light, thinking about:

23% return on capital over 5 years average (ROCE over 20% = quality)
Real estate worth way more than the balance sheet shows
Rent checks from 41,000+ locations worldwide
Positive free cash flow for decades
Fixed costs (property interest rates), variable income (franchisee rent as a percentage of gross sales)

AlphaSpread shows intrinsic value at $220. I paid $293.50. That's almost a 30% premium.

But this is a dominant business. They own the real estate. They collect the rent. And there are ALWAYS people there.

It's usually a smart long-term decision to pay a premium for quality.

But everyone's worried about GLP-1 drugs hurting fast food, right?

But we see that McDonald's has survived every health trend for 70 years. Low-carb. Atkins. Keto. Paleo. Vegan movements. Super Size Me.

Yet, they just keep growing.

Look, I don't eat there. Grandpa takes the kids occasionally. Some people think it's a sin stock.

But it's people's choice. This isn't the 1950s when doctors sold cigarettes. Everyone KNOWS McDonald's is bad for you. The information is everywhere. Yet millions choose to eat there every single day.

The parking lot doesn't lie.

So, I stopped being anchored to $177 and started looking at the business McDonald's is TODAY.

The business is better. Stronger. More profitable. Controls more real estate.

The stock price reflects that. As it should.

Do you own McDonald's? Did you know they're basically one of the world's largest real estate companies disguised as a burger chain?

Hit reply and let me know. I'm curious if this was news to you.

P.S. — Those properties McDonald's bought in the 1960s-80s for $50,000-$500,000? They're sitting on some of the most valuable commercial real estate in the world now.

Disclaimer: This is not investment advice, just one person's opinion that may be incorrect. Do your own research before making any investment decisions.

😁THANK YOU to all who responded to the last newsletter!!

Check out the portfolio on Blossom, the podcast, or see what’s cooking on YouTube.

And now, here is this week's portfolio activity...

Dividends Received This Week ~$171.35

iShares 0-3 Month Treasury Bond ETF (SGOV) | $4.85
VICI Properties (VICI) | $166.50

Dividends Received Year to Date (Schwab Only)~

$4,658.38

Stocks Sold (AVERAGE)

6 iShares 0-3 Month Treasury Bond ETF (SGOV) | $100.50

Stocks Bought (AVERAGE)

6 Ares Capital (ARCC) | $19.34
1 McDonald's (MCD) | $293.50
3 Schwab International Dividend ETF (SCHY) | $27.93
5 VICI Properties (VICI) | $31.15
1 Harrow Inc. (HROW) | $38.45

Notable Ex-Dividends This Week + SSD Score

10/14 Bank Ozk (OZK), 3.69% | 50BS
10/14 Hormel Foods (HRL), 4.89% | 80S
10/14 McCormick & Company (MCK), 2.70% | 80S
10/15 Mid-America Apartment Comm. (MAA), 4.50% | 97VS
10/17 Colgate-Palmolive (CL), 2.67% | 90VS
Diageo plc (DEO), 4.26% | 90VS

🎙️Podcast of the week🎙️

Eddy Elfenbein – OG Financia...

Oct 10 · The Meb Faber Show - Bet...

50:07

I love Eddy Elfenbein's story - from financial blogger to fund manager. And, he has a great buy list that he rebalances annually by swapping out 5 stocks only. Check out the current BUY LIST!

🎦If you missed it, find out the mistake Peter Lynch says most investors make and what to do about it.

🚨Seeking Alpha Special Offer!!🚨

Click the image above, sign up for a 7-day free trial, get $30 off an annual PREMIUM SeekingAlpha.com subscription + the next Alpha Pick FREE!

*This is an affiliate offer, and I will receive a small commission at no additional cost when you buy a premium annual subscription after clicking the image above.

Introductory offer for first-time subscribers only. $30 off Premium for the first year. At the end of the free trial (or immediately if you are no longer eligible for a free trial), $269 is charged automatically for the first year of your annual subscription. Auto-renews at the then-current annual list price (current list price is $299).
You will receive the May 15th strong buy pick from Alpha Picks. The pick will be sent via email to your email address associated with your Seeking Alpha account.

🎶Random music from the Dapper Dividends Jukebox🎶

Frida - I Know There's Something Going On