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McDonald's Boosts Dividend by 5.0%

Zacks Equity Research

Leading fast food chain, McDonald's Corp. (MCD), recently hiked its quarterly dividend by 4 cents to 81 cents per share, a 5.0% increase from the prior dividend payout. This equates to an annual payout of $3.24 per share, up from $3.08 per share.

McDonald’s has a consistent track record of not only paying quarterly dividends but also increasing the same every year, since the inception of its dividend payout program in 1976. The latest hike brings the forward annual dividend yield, as of Sep18, 2013, to 3.28%. The first increased quarterly dividend will be paid on Dec 16, 2013, to stockholders of record as of Dec 2.

The current rise comes exactly after a year of its prior dividend increase declared in Sep 20, 2012 (from 70 cents to 77 cents, which was paid on Dec 17, 2012). Prior to that, McDonald’s had increased its quarterly dividend by 15%, 11% and 10% in Sep 2011, Sep 2010 and Sep 2009, respectively.

Another restaurateur, Frisch's Restaurants Inc. (FRS) increased its quarterly dividend by 12.5% to 18 cents per share in Sep 12, 2013. In fact, McDonald’s’ current annualized dividend yield inched past Frisch's’ forward annualized dividend yield of 3.18% as of Sep 18, 2013. Yet another behemoth in this sector, Brinker International Inc. (EAT) also hiked its quarterly dividend by 20% to 24 cents per share in Aug 22, 2013.

McDonald’s has consistently enhanced shareholders’ return via share repurchases and dividends. The company repurchased shares worth $2.6 billion and $3.4 billion in 2011 and 2012, respectively. In fact, during the past five years ended 2012, it has returned over $27 billion to shareholders in the form of share repurchases and dividend payments. In 2013, the company expects to return about $4.5 billion–$5.0 billion in cash to shareholders via dividends and stock buybacks.

McDonald’s carries a Zacks Rank #4 (Sell). We are encouraged by the company’s strong market share position in the restaurant categories. Its offerings have reached the billion-dollar brand status through sustained product innovation and geographic expansion. These growth initiatives combined with the re-franchising strategy bode well for the company’s long-term growth.

However, the company is caught up with difficulties like the implementation of austerity measures in Europe owing to the sovereign debt crisis, increasing commodity costs in the U.S. and decelerating growth in Asia.

Other Stocks to Consider

A popular player in the restaurant industry that looks attractive at the current levels is AFC Enterprises Inc. (AFCE), carrying a Zacks Rank #2 (Buy).

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