Considering the current economic environment, investors may appear to have good reason to avoid McDonald's (MCD 0.45%) stock. Even though revenue and comparable sales rose, the company admitted that lower-income customers will probably spend less.
Moreover, restaurants like Chipotle and Starbucks have reported falling sales growth as more customers balk at rising prices and what they perceive as less satisfying experiences.
Still, investors should take the McDonald's business model into account. Amid near-term struggles, the industry's bad news is unlikely to stop the growth of McDonald's stock, and here's why.
Image source: Getty Images.
How the company's business model protects McDonald's
Admittedly, the restaurant industry faces significant struggles. Restaurants such as McDonald's have turned to price increases to mask those challenges from a financial standpoint.
Still, as previously mentioned, customers have increasingly complained about high prices and mediocre experiences. McDonald's is not immune, and a 2023 post on social media platform X detailing an $18 Big Mac combo meal appeared to confirm this problem.
Fortunately, for investors, McDonald's is a different kind of restaurant. This is because restaurants such as Chipotle rely on sales from company-owned locations for their revenue.
In contrast, around 95% of all McDonald's restaurants are franchises. Thus, the company earns revenue primarily from its franchises. This includes the initial fee, restaurant rents (McDonald's owns the properties and leases them to franchisees), and royalties of 4% or 5% of gross sales.
Since only the royalties vary by sales, the company receives a relatively stable stream of revenue regardless of the business environment. Plus, some customers will trade down in a more challenging economic climate and eat at a place like McDonald's. This could make the chain more recession-resistant than other restaurants.
The financial performance
Despite concerns that customers have stopped eating out, McDonald's earned almost $20 billion in revenue in the first three quarters of 2025, rising 2% compared to the same period in 2024. This included a 3% yearly increase in Q3.
During the nine-month period, it limited cost and expense growth to 2%, though non-operating costs rose at a faster pace. Consequently, net income for the first three quarters of 2025 was $6.4 billion, rising 3% annually.
Moreover, one perk for long-term McDonald's shareholders is its strong dividend position. Last month, it approved a payout hike for the 49th consecutive year. The company increased its dividend by 5% to $7.44 annually per share, taking the dividend yield to around 2.4%.
Since the S&P 500 average yield is just over 1.2%, its dividend returns are far above the average. Additionally, the dividend cost McDonald's $3.8 billion in the first nine months of the year, well below the $5.5 billion in free cash flow over the same timeframe. This likely means its payout will remain stable.
NYSE: MCD
Key Data Points
The 5% growth in the stock in 2025 will likely not impress growth investors. Still, its 26 P/E ratio is below the S&P 500 average of 31. This positions investors to buy a stable business and a steadily growing stream of dividend income at a significant discount.
McDonald's stock going forward
McDonald's remains strongly positioned to deliver a rising stream of income and stock price increases.
Indeed, McDonald's stock won't excite anyone, and one has to assume that fewer lower-income customers will eat there. Amid such conditions, the restaurant industry at large seems to be in a state of malaise.
However, despite such worries, McDonald's revenue continues to grow, likely because it bases most of its revenue stream on fixed payments from franchisees, insulating the company from economic cycles. That positions the company to deliver steady streams of dividend income and annual payout hikes.
Ultimately, when considering its business model and discounted P/E ratio, McDonald's stock appears to remain a buy for more income-oriented investors.
