Households are grappling with widespread inflation as economies reopen worldwide. The coronavirus pandemic has snarled supply chains, making it harder to produce the goods that consumers demand. Meanwhile, spending has been robust throughout the pandemic as government stimulus has buoyed household income.
In the face of these rising challenges, McDonald's (MCD 0.32%) could be one resilient stock to own. The company's low-priced menu could be a reprieve for consumers getting pinched by rising inflation.
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McDonald's reported record earnings in 2021
According to the Bureau of Labor Statistics, the consumer price index, which measures a basket of goods and services, rose by 8.3% year over year in April. Costs are increasing on things like rent, groceries, fuel, restaurant meals, and more. Notably, many of the items that are rising in price are essentials, and consumers must buy them. Indeed, you have to live somewhere, eat something, and drink water.
That could leave less money in household budgets for discretionary items like eating out at a restaurant. Fortunately, a meal at McDonald's can often cost less than preparing the meal at home with groceries bought from the store. That affordability feature could allow McDonald's to thrive as inflation rises.
MCD EPS Diluted (Annual) data by YCharts.
Instead of choosing a more expensive away-from-home meal option, a family is more likely to choose McDonald's when their budgets are crimped. In fact, the company's earnings per share of $10.04 in 2021 was a record high.
The company's investments in its digital channels have helped it reach a broader audience more often. The option to have meals delivered to customers' homes could prove an excellent feature with prices for fuel, cars, and ride shares surging.
McDonald's is an excellent option for income investors
The robust earnings could fuel continued dividend increases from the Golden Arches. Profits are critical for dividend payments because a company could not sustain the payment long-term without them. In 2021, McDonald's boasted a dividend per share of $5.25. That was up from the $2.87 it paid in 2012.
MCD Dividend Yield data by YCharts.
As of this writing, McDonald's dividend yield was a healthy but not incredible 2.3%. Income investors could get 2.9% by investing in a 10-year government bond. However, one advantage for income investors with McDonald's is the likelihood it will increase its dividend payment over time as it has in the previous decade -- a feature not available to government bond investors.
Take a bite out of McDonald's
MCD PE Ratio data by YCharts.
Fortunately for investors, McDonald's stock is not expensive when measured by the price-to-earnings and price-to-free-cash-flow ratios. The recent bout of market volatility could mean that if you add McDonald's to your watch list, you may get an opportunity to buy it at an even lower price.
Additionally, you could split your purchase price in two and buy half your allocation now and the other half in a few months. That way, if the stock price falls further, your average purchase price would be lower than if you bought all shares upfront.
