McDonald’s Rewards Investors with Rising Dividends for More Than Four Decades (MCD)

While the McDonald’s Corporation (NYSE:MCD) relocated its headquarters recently and is working on updating its menu, as well as its store design, to keep up with changing customer tastes and demand, what remains unchanged it’s the company’s commitment to rewarding its shareholders with long-term rising dividends and accompanying capital gains.

As an S&P 500 company with a market capitalization of more than $3 billion, the company’s record of 41 consecutive dividend hikes affords McDonald’s a spot in the exclusive Dividend Aristocrats group, which it currently shares with just 51 other companies that meet all inclusion requirements.

In addition to paying rising dividends for more than four decades, the company has rewarded its shareholders with steady asset appreciation, which combines with the rising dividends for robust total returns. In contrast to its long-term trend, the company’s share price experienced a significant drop in January 2018, which was just the second uninterrupted drop of more than 15% in the past five years. However, the share price has already recovered all of those losses and seems primed for further advancement.

Every previous share price pullback turned out to be a buying opportunity for long-term gains. Therefore, after completing their own due diligence, interested investors should consider taking positions prior to the company’s upcoming ex-dividend date on August 31, 2018, to ensure eligibility for the upcoming dividend distributions on the September 18, 2018, pay date.

McDonald’s Corporation (NYSE:MCD)

Founded in San Bernardino, California, in 1948, the McDonald’s Corporation operates and franchises approximately 36,000 restaurants in the United States and 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, 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 the 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 in Oak Brook, Illinois, the company moved its headquarters back to Chicago’s West Loop in early June 2018.

After initially gaining 12% over the most recent 12-month period and achieving its 52-week high of $178.36 on January 26, 2018, the share price lost nearly 17% on the way towards its 52-week low of $148.27 on March 2, 2018. However, since the March low, the share price has regained more than 40% of those losses and closed on August 21, 2018, at $161.04, which was 1.7% higher than one year earlier. Additionally, the August 21, 2018, closing price was 8.6% above the March low and more than 70% higher than it was five years ago.

The company’s current $1.01 quarterly payout is 7.4% above the $0.94 distribution from the same period last year. This new quarterly payout amount corresponds to a $4.04 annualized payout and yields 2.5%. However, the company boosted its quarterly payouts in the fourth quarter every year for the past decade. Therefore, it is not unreasonable to expect that MCD will enhance its quarterly payout again in time for its December distribution. Based on the trend over the past few years, the next dividend hike should bring the actual annual dividend payout for 2018 to approximately $4.10, which would be equivalent to a 2.6% dividend yield at current share prices.

While the pace of the company’s rising dividends naturally slowed over the past few decades, MCD managed to advance its total annual dividend amount more than 22-fold over the past two decades, which corresponds to an average annual growth rate of nearly 17%. Additionally, the company’s current dividend yield is 56% higher than the 1.6% average yield of all the companies in the Restaurants industry segment.

While the small share price gain kept the total return to 6% over the last 12 months, the total returns over the past three and five years were significantly higher at 73% and 88%, respectively.

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