Shares of McDonald's (MCD 0.37%) have crushed the market this year. The stock is up about 2% year to date; the S&P 500, meanwhile, has declined about 17%.
While there are a number of factors contributing to the stock's solid performance this year, one helpful factor is the company's dividend. Its cash payout, which has helped shareholders achieve nearly a 5% total return after adding in the dividends paid, offers investors some reassurance during a tough market. By rewarding shareholders with cash payments while still reinvesting in the business, McDonald's regularly reminds them that it knows how to consistently create shareholder value.
But exactly how attractive is McDonald's dividend?
McDonald's dividend history
The dividend is impressive, having gone up annually for 46 years straight. After all this time, the dividend's growth remains strong even recently, rising by 50% over the last five years. Its most recent increase occurred in October, when it went up by 10%.
A meaningful yield
Strong operating results and management's prioritization of dividends mean the company's payout is quite meaningful. Its current quarterly dividend of $1.52 translates to $6.08 annually, giving the burger chain a dividend yield of nearly 2.3% as of this writing. This compares to an average yield of about 1.7% in the S&P 500. Not bad.
More dividend growth ahead
Great -- McDonald's pays a solid dividend, which has grown steadily for years. But what about the future?
There are two reasons to expect dividend growth in the years to come (other than the company's long history of consistent increases).
The first reason is that the underlying business is very healthy. First-quarter comparable-store sales increased 10% year over year across all segments, with U.S. comps increasing more than 6% year over year. In the company's first-quarter earnings release, CEO Chris Kempczinski said, "As the macroeconomic landscape continues to evolve and uncertainties persist, we are operating from a position of competitive strength."
Trailing-12-month operating income was $10.2 billion, up from $9.9 billion in 2021, $7.2 billion in 2020, and $8.9 billion in the pre-COVID year of 2019. Analysts expect the financial momentum to continue, with the consensus forecast calling for annualized earnings-per-share (EPS) growth of more than 6% over the next five years.
The second reason investors will likely see more dividend growth from the company in the years to come is that its payout ratio still leaves room for it even if earnings growth stalls (although dividend increases would be limited if earnings growth did stop). McDonald's now pays out less than 70% of its annual earnings in dividends, leaving some meaningful wiggle room for payout ratio growth.
Overall, the company's operating-income momentum, analysts' forecast for meaningful EPS growth in the years to come, the impressive dividend history, and a decent yield combine to make the fast-food company a great dividend stock.
