If you want to retire comfortably, you'll need close to $1.3 million by the time you're ready to stop working. That's the magic number Americans estimate they'll need, according to a survey from Northwestern Mutual earlier this year. It can seem like a staggering amount of money.
But even if you don't reach that total, by maximizing your returns and growing your portfolio as much as you can, you'll set yourself up for a better retirement.
One dividend stock that can help grow your portfolio's value and generate massive dividend income for you over the years is McDonald's (MCD +0.18%). Here's why this can be an ideal stock for buy-and-hold investors to hang onto for the long haul.
1. McDonald's pays an above-average yield of 2.4%
An important factor for dividend investors is inevitably going to be a stock's dividend yield. At 2.4%, McDonald's doesn't offer a sky-high yield for investors, but it is still higher than the S&P 500 average of 1.6%.
Investors aren't getting an excessively high payout with McDonald's stock that may be unsustainable. And it's also not so low that the dividend income is insignificant. Plus, in the long run, there's also hope that the dividend will get bigger.
NYSE: MCD
Key Data Points
2. Its dividend has doubled in 10 years
For long-term dividend investors, it's crucial to consider dividend growth. Without an increasing dividend, investors would be collecting the same amount of dividend income today as they would be five or 10 years into the future. And with inflation eroding away the purchasing power of that dividend income, that means investors would effectively be earning less in real dollars over time.
Even if a company doesn't make huge dividend hikes, it's important that it shows a commitment to raising its dividend. McDonald's not only has a strong track record of increasing its dividend for 47 consecutive years, but it has also made generous increases; in just 10 years, its dividend has doubled.
MCD Dividend data by YCharts.
3. Its payout ratio is low
A stock's payout ratio is important because, in addition to signifying whether the current dividend is sustainable, it can give investors an insight into whether the company can afford to raise future payouts.
McDonald's has a payout ratio of 54%, which isn't high, and it gives the business plenty of breathing room to balance both dividend and growth objectives. Given its strong financials, the company looks to be a safe bet to continue raising its dividend for the foreseeable future, and in less than three years, McDonald's should become a Dividend King.
4. McDonald's is a strong brand
If you're investing for the long term, you need to have confidence in the company's future growth prospects. McDonald's, being a top name in the fast-food restaurant industry, has shown resilience over the years. Its low-cost options make its restaurants attractive places for dining out even amid inflation. At the same time, the company has the pricing power necessary to battle rising costs.
In its most recent quarter, which ended Sept. 30, McDonald's reported global comparable sales growth of 8.8%, with the company crediting strategic price increases in its menu as a key reason for its strong results. Overall revenue for the period rose by 14% to $6.7 billion.
5. The stock has a low beta
McDonald's isn't a volatile stock to own, which is important to dividend investors who primarily want their investment to generate recurring income and not have to worry about wild fluctuations in the stock's value.
The stock has a beta value of 0.7, which tells investors that shares of McDonald's generally do not fluctuate as wildly as the broader markets. That helps to lessen the overall risk of holding the stock.
McDonald's is a suitable investment for any dividend investor
McDonald's isn't a stock that is likely to double or triple in value any time soon. But if you're looking for a quality dividend investment to hang onto, you won't find many better stocks to own than McDonald's. Between the company's strong and consistent financials and its above-average yield and track record for dividend growth, the stock gives investors many reasons to buy and hold it for not just years but decades.
