Billions Served: Get Your Share

You know it's a slow news day when something as mundane as McDonald's (NYSE: MCD) annual dividend increase not only makes all the headlines but also gets credit from the talking bobbleheads for rallying the entire market. It behooves my Foolish nature to remind everyone -- yet again -- that success of any individual company, even one as great as McDonald's, does not and should not have anything to do with the price of Rag Shops (Nasdaq: RAGS), Ask Jeeves (Nasdaq: ASKJ), Qwest (NYSE: Q), Pier 1 Imports (NYSE: PIR), or any of yesterday's other big movers.

That said, let's not underestimate the importance of the dividend. The announcement of the 35% increase, which raises the payout from $0.40 to $0.55 per share, notes that the world's premier burger hawker has more than doubled the payback over the last two years. Of course, the share price has done about the same thing, meaning the dividend yield isn't changing much. It will stand around 2% after the increase. That's a lot better than my bank, Wachovia (NYSE: WB), is willing to cough up on one-year CDs.

How quickly styles change. Dividends used to be the thing; then they became about as hip as Uncle Edgar's haberdashery. Now, it seems, they're getting a bit more love (and we like to think we were ahead of the curve with our dividend-hunting Income Investor). In addition to providing a nice cushion while you're waiting for your nest egg to grow, dividends can be a sign of healthy cash flow, the real measure of a corporation's ability to create value for you, the part owner.

For the first half of the year, McDonald's has produced $1.7 billion in cash flow from operations yet laid out only $484 million on capital expenditures. That leaves more than $1.2 billion to pay off debt and pay stockholders. It's a far cry from the near past, when some were wondering whether McDonald's was on the highway to heck. (To be fair, some of us did perceive the value.) Even after the major turnaround has been completed, the company continues to provide ample evidence that it can outperform its peers these days. So, even though the stock may look fairly priced today, it's a steady provider with room for growth that should be welcome in most portfolios.

For related Foolishness:

• Proof that fast food is not a no-brainer.
• Explain this cash flow thing for me again, please.
• Look more closely at McDonald's healthy profits.

If you're interested in buying quality companies like McDonald's when they're not so popular, take a free trial of Motley Fool Inside Value .

Seth Jayson could use more dividend payers in his portfolios, but at the time of publication, he had no position in any company mentioned. View his holdings and Fool profile here.