Best Dividend Stocks: McDonald’s Corporation (NYSE:MCD)
By: Ned Piplovic,
The McDonald’s Corporation (NYSE:MCD) offers investors the two basic characteristics of best dividend stocks — a steady long-term share price growth that is accompanied by a long record of consecutive annual dividend boosts.
As an S&P 500 company with a market capitalization of more than $3 billion, the company’s record of 42 consecutive dividend hikes has given McDonald’s a spot in the exclusive Dividend Aristocrats group. Currently only 57 companies are able to meet all requirements for a Dividend Aristocrat classification.
Furthermore, the McDonald’s Corporation has supplemented more than four decades of consecutive annual dividend hikes with steady long-term asset appreciation. Despite a long trend of capital gains, the company’s share price dropped nearly 30% in January 2018. In the past five years, this was only McDonald’s second share price drop that has exceeded 15%.
All of the best dividend stocks with strong fundamentals over the long term view every share price pullback as a buying opportunity for long-term gains. However, interested investors might consider conducting their own in-depth analysis to ensure that the stock aligns well with their portfolio strategy before deciding to take a long position in the McDonald’s stock.
Best Dividend Stocks: McDonald’s Financial Results
The McDonald’s Corporation’s first-quarter results were not stellar on the surface. On April 30, 2019, the company announced that its total revenues were down 4% year-over-year, operating income was 2% lower and net income had declined 3%. However, a more detailed examination of the company’s results shows a much brighter picture.
Adjusted for the impact of foreign currency exchanges, total revenues were 2% higher, operating income was up 3% and net income rose 2% above the same period in 2018. Furthermore, same-store sales in the U.S. market had increased 4.5% year-over-year. International markets grew even faster on a comparable bases as they posted 6.0% sales growth. The fastest expansion of international growth occurred in France and the United Kingdom
Adjusted earnings remained flat during the prior year at $1.72 per diluted share. However, McDonald’s still returned $1.9 billion of its cash to shareholders through dividend income payouts and a share repurchase program.
“We started the year strong with our 15th consecutive quarter of positive global comparable sales, reflecting continued broad-based momentum across each of our global segments,” said McDonald’s President and Chief Executive Officer Steve Easterbrook.
McDonald’s Corporation (NYSE:MCD)
Founded in San Bernardino, California, in 1948, the McDonald’s Corporation operates and franchises approximately 38,000 restaurants in the United States and in more than 100 countries internationally. The United States segment is the company’s largest market in terms of number of restaurants, revenues and operating income. Additionally, the company’s International Lead Markets segment includes some of the largest, best resourced and most established markets in developed countries. The High Growth Markets segment — which has higher-than-average restaurant expansion and franchising potential comprises eight key markets in Asia and Europe — China, Korea, Russia, Poland, Italy, Spain, the Netherlands and Switzerland. Finally, the Foundational Markets segment spans more than 80 markets across Europe, the Middle East & Africa, Asia and Latin America, and is the company’s largest and geographically most diverse segment. Most of the company’s restaurants offer a standardized menu that includes hamburgers and other food products, desserts, soft drinks, coffee and other beverages. However, despite having a business model that calls for standardized product selections, the company offers menu variations across geographic regions to suit local consumer taste preferences and cultural norms. After 47 years of operation in Oak Brook, Illinois, the company moved its headquarters back to Chicago’s West Loop in early June 2018.
Best Dividend Stocks: McDonald’s Dividends
The company boosted its quarterly payout nearly 15% from $1.01 in the third-quarter of 2018 to its current $1.16 distribution. This new quarterly payout amount is equivalent to a $4.64 annualized payout and a 2.3% forward dividend yield. The rapid share price growth suppressed McDonald’s current yield 15% below the company’s own five-year yield average. However, McDonald’s current yield is still 6.4% higher than the 2.14% average of the overall Services sector, as well as nearly 38% above the 1.65% simple average of McDonald’s peers in the Restaurants industry segment.
The most current dividend hike in December 2018 marked McDonald’s 42nd consecutive annual dividend boost. Just over the past two decades, the company has enhanced its annual dividend amount more than 23-fold. This advancement pace corresponds to an average annual growth rate of 17%. Even as the dividend growth rate slowed, McDonald’s still maintained an 8.5% average annual dividend growth rate over the past decade.
Best Dividend Stocks: McDonald’s Share Price
Still affected by the tail end of the 30% pullback in early 2018, McDonald’s share price dropped another 6.5% during the first five weeks of the trailing one-year period. However, after bottoming out at $155.41 on August 2, 2018, the share price reversed direction and headed higher. Even during the overall market pullback that drove most other equities to drop to their respective 52-week lows in December 2018, McDonald’s share price merely dipped 10% and resumed its uptrend.
The share price regained all its losses by the end of March and finally broke through the $200 resistance level in early June 2019. After setting a new all-time high of $205.48 on June 7, 2019, the share price pulled back 0.8% and closed on at $203.81 on June 17. This closing price represented a 22.6% gain over the past 12 months and was 31% above the 52-week low from August 2018. Additionally, the share price doubled over the past five years.
Like all best dividend socks, McDonald’s has continued delivering strong total returns on shareholders’ investment over an extended time frame. McDonald’s has rewarded its shareholders with a combined total return of more than 25% just over the past 12 trailing months. Its three-year total return was more than 77%. Lastly, its shareholders more than doubled their investments with a total return of more than 123% over the past five years.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.