McDonald's (MCD 2.80%) has been quite the up-and-down stock in 2023. It flew high at various points thanks to its very strong fundamental performance, but it also turned south quickly when it announced the first raise in its franchise royalty fees in almost 30 years.
Yet the company recently signaled confidence in its future by raising its dividend by a very substantial amount. Let's peek under the bun at this dividend raise and see whether it supports the buy case for the restaurant behemoth's stock.
A dividend raise as thick as a Big Mac
Last month, McDonald's announced its next quarterly payout would be $1.67 per share. Rounding up only slightly, that's 10% more than the preceding distribution.
The restaurateur is always thinking for the long term, and the dividend is a solid example of this: The new hike will make it 47 years in a row that the company has boosted its payout.
While that's encouraging, there are surely practical reasons behind this. For the most part, the company's stock price has risen steadily over the years, and dividend raises help to keep the stock's yield competitive.
The new dividend works out to a more-than-respectable 2.5% yield at the most recent closing price. A relatively high yield helps keep investors "sticky" and loyal to the stock.
To its credit, though, McDonald's has never been a lazy set-it-and-forget-it business. It's always trying hard to grow its already considerable presence as the king of fast food, and these days it has a clear strategy.
NYSE: MCD
Key Data Points
It's called Accelerating the Arches, a catchy name for a program that has the company focusing on three "growth pillars." These are maximizing its marketing, committing to core menu items (burgers, of course, but also chicken items and coffee), and doubling down on what it calls its "4Ds" -- delivery services, digital and drive-thru sales, and the development of its business.
Investors balked at the royalty raise for new franchisees -- from 4% to 5% -- but to me it's smart business and it's fair. McDonald's are busy places these days, as shown clearly by company fundamentals (more on this in a moment). It's reasonable to set a higher price for a notably growing business. Considering that, I can't imagine potential franchisees turning away because of a single percentage-point bump.
You can still take advantage of the dividend raise
It's promising when a management team can hook a relatively straightforward strategy onto a sprawling and often complicated business like McDonald's. But a solid, clear set of goals only has value if that team can execute it effectively. Does this company pass the test?
I believe it has, and impressively at that. In the company's third quarter, it managed to grow worldwide comparable-store sales by almost 9% year over year, pushing consolidated revenue up 14%.
Those boosts filtered down into net income, which rose by 17%. Those numbers are very good for a company that already has a monster footprint and a commanding presence in its sector throughout the world.
I'm not a regular customer of McDonald's, but on the rare occasions I've visited one of the restaurants, I've noticed that the products and processes it's focusing on are resonating with consumers.
There are always at least a few cars in the drive-thru lane, while inside, people regularly use the touch-screen ordering kiosks -- which help save on costs and raise efficiency -- without too much frustration or struggle.
The company's classic food items are featured prominently on the menu, while it's never shy to push new offerings. (Want some Mambo Sauce with your McNuggets, ma'am?) There are enough coffee items to satisfy any java drinker, but not so many that the beverage menu overwhelms (a balance also nicely struck by caffeinated-drinks rival Starbucks).
All in all, today's McDonald's feels very much in tune with the habits and desires of the modern fast-food and beverage consumer.
That's one reason to continue being bullish on it. This is very much a company that knows what it's doing, and how to go about doing it.
We should see this continue to be proved by performance; the consensus analyst estimates call for a more than 10% growth in total sales this year, accompanied by a very juicy 17% raise in per-share net income. We can easily imagine another major dividend raise based on those improvements.
Speaking of which, happily for the McDonald's-curious out there, it's not too late to hop on the company's latest dividend raise. The enhanced amount will be paid out on Dec. 15 to investors of record as of Dec. 1.
