The restaurant industry has evolved dramatically over the past half-century, and McDonald's (MCD +0.75%) has worked hard to remain relevant in an ever-changing industry environment. Competing trends have posed difficulties for McDonald's, including the move toward fast-casual dining, an emphasis on healthier ingredients in prepared foods, and the ever-present quest for good value. Yet through innovative thinking and a willingness to embrace new ideas, McDonald's has been able to keep up with the times and reward investors through rising dividends. Shareholders now wonder, though, whether a recent rise in the stock price reflects overly optimistic expectations that could lead to future disappointment and eventually cause a halt to McDonald's dividend growth. Let's take a closer look at McDonald's to see whether investors can safely rely on the dividend going forward.
Dividend stats on McDonald's
|
Current quarterly dividend per share |
$0.94 |
|
Current yield |
2.4% |
|
Number of consecutive years with dividend increases |
41 years |
|
Payout ratio |
61% |
|
Last increase |
November 2016 |
Data source: Yahoo! Finance. Last increase refers to ex-dividend date.
Dividend yield
McDonald's has a yield of 2.4%, which is slightly above the average for the overall market. But what's interesting is that the current dividend yield is less than what McDonald's has historically offered over the past 10 years. The stock has more typically traded in a range yielding between 2.5% and 3.75%. Yet the drop in yield doesn't reflect a decline in actual dividend payments because the amount that McDonald's has paid in dividends has continued to rise. Instead, the decline in yield reflects the strong performance of the stock, which has risen to new all-time highs over the past year.
Image source: McDonald's.
Payout ratio
McDonald's has a current payout ratio of just over 60%, showing the company's commitment to dividend payments but also indicating available capital for other uses. The current level is a bit higher than what investors in the fast-food giant have seen in past years, with the company staying in fairly tight range of 45% to 55% throughout much of the 2010s. A temporary slump in earnings was partially responsible for the rise, but the success of McDonald's turnaround efforts has led to faster earnings growth, and the payout ratio has started moving downward from its highest levels of the decade.
Dividend growth
McDonald's has a strong reputation for dividend growth. As a Dividend Aristocrat, McDonald's has a 41-year streak of raising its dividend payouts annually. The most recent boost came late last year, with a 6% rise continuing the solid pace of growing dividends. McDonald's has embraced dividend growth since 2000, shifting from token increases to offer more robust growth and moving from an annual to a quarterly dividend payment schedule to meet the needs of income investors.
MCD Dividend data by YCharts. Note: Chart reflects annual dividends in 2007 and earlier and shift to quarterly dividends in 2008 and after.
What's happened with McDonald's lately?
McDonald's still has a strong position in fast food, but the broadening of the restaurant industry has required the company to become more ambitious about embracing a wider range of customers. For instance, the move to bring out the McCafe line was a direct answer to the rise of the coffeehouse culture. A new McCafe experience will take further steps toward appealing to coffeehouse customers as McDonald's attempts to win market share in an upscale-focused niche.
McDonald's is also being smart about keeping up with the times. The fast-food giant has addressed customers' desire for convenience by rolling out delivery options, and adapting mobile-device use to ease in the ordering and payment process also has huge implications for customer service. At the same time, appealing to customer loyalty with moves like all-day breakfast has proven to be instrumental in reengaging with those who grew up with McDonald's. The stock has already reflected the big rebound for McDonald's core business, but many believe that the future could be even brighter for the fast-food giant.
What to expect from McDonald's
Not only is McDonald's dividend safe, but investors should also expect another dividend increase later this year. The fast-food giant is firing on all cylinders, and that's good news for income investors looking for continued strong dividend payments from the stock.
