Assessing McDonald's Dividend Sustainability and Growth Prospects
McDonald's Corp (MCD, Financial) recently announced a dividend of $1.67 per share, payable on 2024-03-15, with the ex-dividend date set for 2024-02-29. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's look into McDonald's Corp's dividend performance and assess its sustainability.
What Does McDonald's Corp Do?
McDonald's is the largest restaurant owner-operator in the world, with 2023 system sales of $130 billion across nearly than 42,000 stores and 115 markets. McDonald's pioneered the franchise model, building its footprint through partnerships with independent restaurant franchisees and master franchise partners around the globe. The firm earns roughly 60% of its revenue from franchise royalty fees and lease payments, with most of the remainder coming from company-operated stores across its three core segments: the United States, internationally operated markets, and international developmental/licensed markets.
A Glimpse at McDonald's Corp's Dividend History
McDonald's Corp has maintained a consistent dividend payment record since 1977. Dividends are currently distributed on a quarterly basis. McDonald's Corp has increased its dividend each year since 1977, earning its status as a dividend aristocrat—a distinction reserved for companies that have raised their dividend annually for at least 25 years. Below is a chart showing annual Dividends Per Share to track historical trends.
Breaking Down McDonald's Corp's Dividend Yield and Growth
As of today, McDonald's Corp currently has a 12-month trailing dividend yield of 2.11% and a 12-month forward dividend yield of 2.26%. This suggests an expectation of increased dividend payments over the next 12 months.
Over the past three years, McDonald's Corp's annual dividend growth rate was 7.30%. Extended to a five-year horizon, this rate increased to 7.60% per year. And over the past decade, McDonald's Corp's annual dividends per share growth rate stands at 7.30%.
Based on McDonald's Corp's dividend yield and five-year growth rate, the 5-year yield on cost of McDonald's Corp stock as of today is approximately 3.04%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-12-31, McDonald's Corp's dividend payout ratio is 0.52.
McDonald's Corp's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks McDonald's Corp's profitability 9 out of 10 as of 2023-12-31, suggesting good profitability prospects. The company has reported positive net income for each year over the past decade, further solidifying its high profitability.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. McDonald's Corp's growth rank of 9 out of 10 suggests that the company's growth trajectory is favorable compared to its competitors.
Revenue is the lifeblood of any company, and McDonald's Corp's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. McDonald's Corp's revenue has increased by approximately 10.80% per year on average, a rate that outperforms approximately 75.38% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, McDonald's Corp's earnings increased by approximately 25.40% per year on average, a rate that outperforms approximately 69.13% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of 9.70%, which outperforms approximately 65.42% of global competitors.
Next Steps
Considering McDonald's Corp's track record of dividend payments, consistent dividend growth rate, prudent payout ratio, strong profitability, and impressive growth metrics, the company stands out as a potentially robust dividend-paying stock. These factors combined suggest that McDonald's Corp is well-positioned to maintain and potentially increase its dividend payouts to shareholders in the foreseeable future. Investors seeking to bolster their portfolio with a company exhibiting both stability in dividend payments and promise for future growth may find McDonald's Corp an attractive prospect.
GuruFocus Premium users can screen for high-dividend yield stocks using the High Dividend Yield Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
