Does McDonald’s Corporation (NYSE:MCD) Have A Place In Your Portfolio?
Over the past 10 years McDonald’s Corporation (NYSE:MCD) has been paying dividends to shareholders. The company is currently worth US$138.5b, and now yields roughly 2.6%. Does McDonald’s tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for McDonald’s
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is their annual yield among the top 25% of dividend payers?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has dividend per share risen in the past couple of years?
Is its earnings sufficient to payout dividend at the current rate?
Will the company be able to keep paying dividend based on the future earnings growth?
Does McDonald’s pass our checks?
McDonald’s has a trailing twelve-month payout ratio of 61%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 56%, leading to a dividend yield of around 2.5%. Furthermore, EPS should increase to $8.1.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. MCD has increased its DPS from $2 to $4.64 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes MCD a true dividend rockstar.
In terms of its peers, McDonald’s has a yield of 2.6%, which is on the low-side for Hospitality stocks.
Next Steps:
With this in mind, I definitely rank McDonald’s as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three pertinent factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for MCD’s future growth? Take a look at our free research report of analyst consensus for MCD’s outlook.
Valuation: What is MCD worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MCD is currently mispriced by the market.
Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
