McDonalds (MCD) announced its 40th straight year of an increasing dividend today. The new quarterly dividend is $0.94 per share from the previous $0.89, representing a 5.62% increase. This is actually 1 cent above my expectations and I’m also happy with the 5.62% outpacing my conservative for early retirement inflation rate of 4%. Taking into account the new dividend, the yield on MCD is a juicy 3.28% based on today’s closing price.
Let’s take a look graphically at the dividend growth going back to 2008 (prior to 2008, MCD paid an annual dividend) to see how fast your passive income grows:
Not bad considering how most people will say they hate eating at MCD. I personally love their food and think their coffee is amazing. Looking at the quarterly dividend, it has nearly doubled from 2008-2016 from $0.50 to $0.94. Taking into account the timing of the increase (Q4), your annual dividend income triggered from the stock has grown at 122% during that 9 year holding period. That rate of growth exceeds my desire to try and double my passive dividend income inside of each decade. I’ll put up with all the hate this company gets, as long as my passive income continues to grow at that level (ironically, Europeans really hate on the golden arches, but I swear to you, stepping into a Mickey Dee’s in Europe you wouldn’t be able to tell. Long ass lines).
Part of my goal on this site is to bust the myth of “if a company pays a dividend, then the stock price doesn’t go up” that they teach you in college and many financial advisors will also adhere to. So while I like growing passive dividend income, I’m also greedy and like nice growth in the share price of my holdings that at least matches the S&P500 (but really I want outperformance as well- I’m a capitalist). So how has MCD done compared to the S&P500 for the past decade?
As you can see, it’s not even close. The performance on MCD is nearly triple that of the S&P500 over the last decade. Nice growing safe dividend income, juicy yield, and market beating performance all make for an adult sized happy meal. Yes, super size me!
Let’s look at some of the financials:
Market Cap: $97.96Billion
Profit Margin: 18.84%
Total Cash: $3.13 Billion
Total Debt: $26Billion
Levered FCF: $4.12Billion
Payout Ratio: 67%
Dividend Yield: 3.28%
PE Ratio: 21.92
Things that stick out to me on the financials. The debt, I have a preference for low debt and it would be nice to see that $26Billion come down some. The PE is also a little rich, but that’s the current state of the stock market. At least it’s not a high PE like K. That’s it for the bad news. The good news, I like the profit margins, free cash flow, dividend yield, and the payout ratio leaves room for future increases.
I’m long on MCD. Back in late August, I actually doubled down on my position in MCD at the low 115’s. I like the future prospects for earnings growth, the yield, and future growth prospects for the dividend. If the economy starts to slow down a little, that should be a positive for MCD earnings as people can afford less to eat out at the fancy pants places and tighten their belts a little. Also, like consumer staples, I think when the reversal in the strength of the $ happens, that should give a boost to earnings due to exchange rates. Next year, I’m looking for an increase to the dividend of $0.05 on the low end. Today’s announcement marks 35 holdings announcing increases for the year for me. This is the final announcement I’ve been expecting for the year. Look for an upcoming post on my dividend increase projections for 2017 coming soon in the next couple of days.Follow me on the social medias:
That’s pretty incredible growth in the past eight years. Great choice.
The dad of my gf back in college worked in management for MCD. Must have been around 2002-2003, the stock hit around $10 or so and everyone was saying it was the end for the company. He couldn’t figure out why the stock was getting crushed when store traffic was still good. Wish I could have bought in back then.
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