McDonald’s Isn’t a Burger Company — It’s a Landlord

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed Get Paid While You Wait. Here’s an excerpt from the episode:

[Tim] Yeah, so we sold a 260 put and we collected something around like $3.50 or something. It was a relatively shorter term trade. I mean, McDonald’s is at the 52 week lows right now.
So we’ve been watching it for a while and the valuation was a little too rich for us. And it finally got to a level where we’d be willing buyers. And so I was actually really pleased to get exercised on that, the dividends about 3%.

And like you said, a lot of people think that the values, roughly $100 billion worth of real estate in that portfolio. And as much as people hate on McDonald’s, I’ve almost written it off in my head so many times where people are just gonna kind of stop going there and they don’t. I mean, being a father as I know you are too, you know, my kid’s favourite burger place is McDonald’s to go to.

Whether we let them go to it or not is open for discussion. But you know, it does have tremendous brand and franchise value. So the valuation is much more compelling with where it’s at now.

And I don’t think you have, I mean, obviously they’re not gonna liquidate their real estate likely in the near future. So that’s not the play. But when you’re buying it at a high teens, earnings multiple and a reasonable dividend well in excess of what you can get in the S&P 500.

And they are growing and they have some levers to pull where they should be able to continue to do that for quite a long time. It’s an easy to understand business. And so what we did though was we turned it into, so we were exercising our put at 260.

Our break even, I don’t have it off the tip of my fingers, probably like 266, something like that. And then we sold a call that’s also relatively short term, like 45 days out at 265 and collected a really nice premium. So the annualised return is really good if we end up getting called away at 265.

If not, we can continue to do that. And even if we didn’t sell the call, I’d be comfortable just owning the stock outright. But you know, it’s an options trading subscription.

And so that’s part of the play.