Investors aren't lovin' it. McDonald's (MCD -0.64%) is slated to hit the earnings drive-thru on Tuesday, Aug. 4, and ahead of that report, the fast food stock is slumping.
As of July 29, shares of the burger chain are off 9.6% year to date, a showing that's more than 400 basis points worse than that of the broader consumer discretionary sector. McDonald's is also laboring 20.4% below its 52-week high.
McDonald's has a dependable dividend, but a lot needs to go right for the stock to rebound. Image source: Getty Images.
For those mulling the stock as an earnings play, Wall Street expects McDonald's to report earnings per share of $3.32 on sales of $7.3 billion compared with year-earlier earnings of $3.19 and revenue of $6.8 billion. With inflation weighing on some of the Big Mac's core customers, the earnings report likely needs to be exceptional to spark a rally, but patient investors may find comfort in the dividend.
$10,000 in McDonald's stock equals decent income
So, how much does $10,000 worth of this consumer discretionary stock generate in yearly income? Here's the math.
At a share price of $272, a $10,000 stake in McDonald's yields nearly 37 shares. The annual dividend on this stock is currently $7.35 per share, so 37 shares equal $271.95 in annual payouts. That's decent. It's actually pretty good for investors who don't need that income right now and can leverage the benefit of time by consistently reinvesting McDonald's dividends, allowing them to compound into a larger share position over the long term.
On the other hand, $272 a year in dividends isn't life-changing money, particularly for retirees facing inflationary pressures and high healthcare and long-term care costs. That underscores the point that investors should be diversified and not depend on a single stock, McDonald's or otherwise, for equity income.
NYSE: MCD
Key Data Points
Putting McDonald's dividend into a direct Golden Arches context, Big Mac prices ranged from $4.67 to $6.72 about a year ago across the U.S. Call the average $5.70, and that means McDonald's dividend currently pays for 47.7 Big Macs -- and, no, these restaurants aren't serving partial burgers.
Good dividend news
For investors who aren't overly impressed with McDonald's dividend, don't fret, because there's still something to see here. The fast-food giant is a committed dividend grower, as evidenced by a 5% increase last October.
That marked the 49th consecutive year the company raised its payout. Should it repeat that feat this year, and it likely will, that would make McDonald's a Dividend King, or one of the companies with 50 consecutive years of higher dividends.
Dividend growth is a safe bet with this stock because the company generated $2.4 billion in operating cash flow in the first quarter, easily surpassing capital spending of $1.7 billion. Additionally, McDonald's is a dedicated buyer of its own shares, thus shrinking its share count while making its dividend obligations more manageable.
