As with McDonald’s Corporation (NYSE:MCD)’s nothing changed after the shareholder meeting with CEO Thompson repeatedly reassuring young Hannah MacDonald’s doesn’t market to kids and their menu choices are becoming increasingly healthier.
With Darden, nothing changed either after current and former employees backed by shareholder/social justice charitable foundation, the Nathan Cummings Foundation, confronted CEO Clarence Otis at the meeting over paid sick leave, discrimination, and underpayment.
In 1932 legendary value investor and Warren Buffett mentor Benjamin Graham reminded fellow shareholders they, “are owners of a business and not merely owners of a quotation on the stock ticket,” and should be involved and vocal. More than eighty years later most retail investors are mostly tossing proxies in the circular file or deleting to trash. Up to his death in 1976 Graham was still pounding the table for shareholder activism.
What’s a shareholder to do?
Given most CEOs and boards are wary of shareholder activists and ratings agencies like Fitch have a negative view of the trend in shareholder activism should you just be a passive investor? No, not necessarily, but know this… one retail investor will have subatomic size impact especially with megacaps like McDonald’s Corporation (NYSE:MCD)’s and Chevron Corporation (NYSE:CVX).
You can vote with your wallet and sell but you may miss out on what is an otherwise great company’s stock price appreciation as well as dividends.
Chevron Corporation (NYSE:CVX), the integrated oil company, is a Dividend Aristocrat as of 2012 having consistently raised their yield for 25 years, raising it last year by 13% and this year by 11%. McDonald’s Corporation (NYSE:MCD)’s, world’s largest fast food chain, is also a Dividend Aristocrat. Darden, while not a Dividend Aristocrat, pays out 3.80%, a healthy dividend for a casual dining chain.
Chevron has a reasonable trailing P/E of 9.48 and pays a 3.20% dividend. Its payout ratio is a low 27%. Over the last year its stock has risen 28.54%. Chevron Corporation (NYSE:CVX) won’t be much of a grower going forward as analysts expect a five-year EPS growth rate of only 1.58% year over year.
McDonald’s Corporation (NYSE:MCD)’s has better growth prospects with an 8.76% growth rate predicted. It pays a 3.10% dividend but the payout ratio is 55%. Its trailing P/E is 18.57 with a forward P/E of 15.87. Share price appreciation has underperformed the S&P 500 at 9.92% over the last year while the stocks of smaller competitors Jack in the Box Inc. (NASDAQ:JACK) and The Wendy’s Company (NASDAQ:WEN) are up 42.54% and 33.85%, respectively.
As for Darden Restaurants, owner-operator of 2,000 Red Lobster, Olive Garden, Bahama Breeze, and other brand restaurants in the US and Canada, it has a 16.64 trailing P/E. The stock is barely up 2.42% over the last year. That big yield also comes at a worrying 59% payout ratio. However, its growth rate is expected to be better than Chevron’s at 5.37%.
The Foolish Takeaway
Unless deep pocket shareholder activists are involved, little effect is seen from activist proposals. That also means as a small individual investor you will likely have little impact on the company’s business.
You have to keep an eye on the prize and remember why you bought the stock. In the case of Chevron and McDonald’s Corporation (NYSE:MCD)’s a long time reliable yield is an important reason to stay. Darden, with its higher yield has its own justification, but it has not been an outperformer.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Chevron and McDonald’s. The Motley Fool owns shares of Darden Restaurants and McDonald’s.
The article Are Activist Shareholders Good for Your Stock? originally appeared on Fool.com.
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