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McDonald’s Corp. (NYSE: MCD) is rewarding its shareholders once again with a quarterly dividend of $1.77, payable on Monday, Dec. 16. That is about a 6% increase over the prior payout. While the company has struggled with rising costs and waning customer demand, the dividend payment underscores the management’s commitment to continuing to deliver consistent value to investors.
24/7 Wall St. Key Points:
- McDonald’s Corp. (NYSE: MCD) just rewarded its shareholders again with a dividend hike.
- This popular consumer stock is on track to become a Dividend King.
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Why Investors Like Dividends
Investors favor dividend stocks for two main reasons. The first is that they offer enticing total return potential. Total return is a comprehensive measure of investment performance that includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. It is one of the most effective ways to boost the prospects of overall investing success.
Dividend stocks can also provide investors with a steady, reliable stream of passive income. Passive income is money that is earned with little to no ongoing effort, usually from assets that generate cash flow. This income can come from a variety of sources, including stock dividends. Generating passive income is a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
A Dividend Aristocrat
McDonald’s is the epitome of a stable and dependable stock. It has not only paid out but has increased its dividend annually for 42 years. That is well more than the 25 straight years of growth it takes for an S&P 500 member to become a Dividend Aristocrat. Moreover, in a few years it is poised to become a Dividend King, a member of that exclusive group of stocks that have at least 50 consecutive years of dividend growth.
Since 2008, the dividend’s compound annual growth rate is about 10%. The current dividend yield is 2.4%, which is better than its sector average but less than the yields of competitors Restaurant Brands International Inc. (NYSE: QSR) and Wendy’s Co. (NASDAQ: WEN). McDonald’s share price has grown by 402% since 2008 as well, offering investors growth along with the income.
McDonald’s, the Company
The company operates and franchises more than 40,000 restaurants under the McDonald’s brand in the United States and about 100 other countries. It offers food and beverages, including hamburgers and cheeseburgers, chicken sandwiches, fries, shakes, desserts, soft drinks, coffee, and other beverages. It offers full or limited breakfast, as well as sells various other products during limited-time promotions. The company owns and operates under various structures comprising conventional franchise, developmental license, or affiliate.
Its headquarters are in Chicago. The company was founded in 1940 by brothers Richard and Maurice McDonald in San Bernadino, California. McDonald’s went public in April of 1965. Now it competes with or is similar to Domino’s Pizza Inc. (NYSE: DPZ), Restaurant Brands International, Starbucks Corp. (NASDAQ: SBUX), Wendy’s, Yum! Brands Inc. (NYSE: YUM), and others.
The fast-food purveyor has put the recent E. coli outbreak tied to fresh onions behind it. This year it has also been attempting to lure inflation-weary customers back with value meal options. It now faces the prospects of aggressive tariffs compounding its problems.
McDonald’s, the Stock
The share price has increased more than 50% in the past five years, underperforming the S&P 500. However, in the past six months, its 17% or so gain is more than that of the broader markets. Shares hit an all-time high of $317.90 in October, and the mean price target is up at $321.51. That means that Wall Street sees almost 9% upside in the coming year. Of the 35 analysts that cover the stock, 20 recommend buying shares, six of them with Strong Buy ratings.
The stock remains popular with hedge funds. Institutional investors hold about 73% of the shares. BlackRock, State Street, and Vanguard have notable stakes. About 10 million shares, or around 1.4% of the float, are held short. Note that a couple of executives parted with some shares last month.
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