The red and yellow titan of fast food, McDonalds is a brand that no American is unaware of. McDonalds (MCD) is also a dividend growth stock that has been increasing its dividend payout every year for over 35 years, making it a Dividend Aristocrat. The reason they are so successful is not the quality of food, but the systems they have in place to run like a well oiled machine. You can get a better hamburger at several places I personally enjoy, but when a manager quits at those establishments, the efficiency of recovery is nowhere near what McDonalds is prepared for. Additionally, their marketing has established not only a loyal customer base, but a brand that is known the world over.
I just bought 10 shares of MCD at $95.90 per share.
Let’s talk numbers. First of all, the dividend yield is great right now at 3.38% yield on cost. Over the past 10 years, the dividend has grown about 4.4% per year. Which isn’t all that impressive, but the price has also grown by an average of 18% per year over the same time frame. This means, that despite the solid yield, they are still making use of the rest of their capital to grow the business. The payout ratio is sitting at 56%, which is under the level I consider to be too high, and given their growth, I would say there is little risk in this regard. According to Google, their PE Ratio is 17.25, which is safely below 20. If you invested $1000 in this stock 10 years ago and reinvested all dividends, you would now have about 62.67 shares worth $6013.81 paying out $195.53 dividends each year.
When you look at these numbers, it begs the question “Why wouldn’t every dividend investor want to own this company?” Well, in my opinion, they should. However, given the unhealthy nature of the majority of their menu, McDonalds can get a lot of bad press. On the moral scale, MCD comes in a little heavy, but honestly not as much as a tobacco stock or oil stock in terms of damage to people and the planet.
So the next time you see a news story float around about how unhealthy McDonalds is, check the stock price. Because you might be able to pick up an outstanding stock at a discount due to some short term price noise.