The McDonald’s Dividend (NYSE: MCD) – Why We Love It.
It almost seemed like the market didn’t trust McDonald’s Company (NYSE: MCD) ahead of the earnings report, yet the world’s largest franchise network surprised, once again improving results.
Check out our latest McDonald’s review.
Q3 2021 results
The company reported strong third quarter results with improved earnings, revenues and profit margins.
- Returned: 6.20 billion US dollars (up 14% compared to 3Q 2020).
- Net revenue: US $ 2.15 billion (up 22% from Q3 2020).
- Profit margin: 35% (compared to 33% in Q3 2020).
The increase in margin is explained by the increase in turnover. Over the past 3 years, on average, earnings per share have grown by 5% per year, but its share price has increased by 12% per year, which means it is significantly ahead of the growth in profits.
Analysts reacted positively to the results, pushing targets higher. Oppenheimer led the pack with an increase in the price target to US $ 280, Cowen sees it to US $ 275 while UBS has it to US $ 270. All 3 have it to “Outperform” or “Buy”.
Meanwhile, workforce issues are becoming persistent in many industries. CEO Chris Kempczinski reflected on this, saying it forces restaurants to cut back hours and reduce service speeds.
However, the company plans to tackle this problem with technological solutions, turning to IBM (NYSE: IBM) for AI solutions. IBM will take over McD Tech Labs to develop voice recognition control in McDonald’s drive-thru lanes.
This, in turn, does not appear to worry employees in several cities who have gone on strike one day to protest the company’s response to sexual harassment in the workplace. Protesters call for a safer and more respectful working environment in McDonald’s restaurants.
45 years of dividend history
While McDonald’s 2.2% dividend yield isn’t the highest, we think its long payout history is quite interesting. The company has been an impressive dividend aristocrat, over a 45-year growth streak.
Click on the interactive chart for our full dividend analysis
We always need to research whether a company can afford its dividend, measured as a percentage of its after-tax net income. McDonald’s has paid out 53% of its profits as dividends in the past twelve months. This is a healthy payout ratio , and while this limits the amount of profit that can be reinvested in the business, it is also possible to increase the payout ratio over time.
The company paid out the same amount, 53% of its cash flow as dividends last year, which is within a reasonable range for an average business. the dividend is sustainable. A lower payout ratio usually suggests a greater margin of safety before the dividend is reduced.
Consider getting our latest analysis on McDonald’s financial condition here.
McDonald’s has been paying dividends for a long time, but we’re only looking at the last 10 years of payouts for this analysis. The dividend has been stable over the past 10 years which is great. We think this might suggest some resilience for the company and its dividends.
In the past 10 years, the first annual payment was $ 2.4 in 2011, compared to $ 5.5 last year. This works out to a compound annual growth rate (CAGR) of around 8.5% per year during that time.
Dividends have grown at a reasonable rate over this time period, and without any significant reduction in payout over time, we think this is an attractive combination.
Potential for dividend growth
Dividend payments have been constant over the past few years, but we still need to check if earnings per share (EPS) are increasing, as this will help maintain the purchasing power of the dividend. Strong earnings per share (EPS) growth could encourage our interest in the business despite fluctuating dividends, which is why it’s great to see McDonald’s have increased their earnings per share by 13% per year over the past five years. years.
Earnings per share have grown rapidly, but given that it pays more than half of its earnings as dividends, we wonder how McDonald’s will continue to fund its growth plans in the future.
In conclusion, McDonald’s ranks well on our dividend checklist.
For starters, its dividend payments are relatively stable. It also has a decent outlook for its earnings and dividend growth – given an established business model with excellent profit margins. Finally, the company pays a healthy percentage of its profits, keeping a safe buffer zone for various risks. At an acceptable price, the stock could be part of several dividend-focused portfolios.
However, there are other things for investors to consider when analyzing the performance of stocks. For example, we have chosen 1 warning sign for McDonald’s that investors should be aware of before committing capital to this stock.
Are you looking for more profitable dividend ideas? Try our curated list of dividend-paying stocks with a yield above 3%.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.
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