- McDonald's is the world's largest restaurant chain.
- The company is a Dividend Aristocrat and on track to qualify for King status.
- The McDonald's dividend yield runs in the range of 2% and comes with an outlook for capital growth.
Ready to learn how to buy McDonald’s stock and benefit from the dividend? We'll teach you how in this article.
McDonald’s is not only a blue-chip quality stock but the leader in its field and a reliable dividend payer as well. The company has increased its dividend payments for more than four decades and can continue this trend for several more decades to come.
The takeaway is that buy-and-hold investors, income investors and retirement savers may want to take a serious look at McDonald’s stock for many reasons.
McDonald’s was founded in 1940 by Richard and Maurice McDonald. The two brothers quickly expanded their business into a chain of franchises that utilized the “speedee” system and revolutionized modern fast-food operations.
Ray Kroc joined the group in 1955 as a franchise agent and proceeded to buy the company from the brothers. Under his leadership, the company franchised and expanded into new territories with a focus on owning the underlying properties each restaurant was built on.
Today, McDonald’s is the world’s largest restaurant chain by revenue and volume. The company serves more than 69 million individuals daily and has operations in more than 100 countries, including more than 46,000 stores. Annual revenue topped $23 billion in 2022.
Dividend Statistics and Outlook
McDonald’s is not a Dividend King but it is a Dividend Aristocrat with more than 40 years of consecutive annual increases in its history.
What to know about Dividend King stocks? They have raised their dividends for at least 50 years and MCD is on track for that distinction as well. McDonald’s dividend per share runs with a payout ratio in the mid-50% range, which is very manageable, as is its 8% compound annual growth rate (CAGR).
The CAGR is important to how dividend stocks work and a metric that can change over time. The company carries quite a bit of debt, used in large part to repurchase shares, but it is well managed and doesn't impact the company’s ability to pay dividends.
McDonald’s Stock Split
A stock split refers to an issue of new shares in a company to existing shareholders, proportional to their current holdings.
McDonald’s stock split nine times since the early 1970s. The splits break down into two categories, 3-for-2 splits and 2-for-2 splits, of which there were five of the former and four of the latter. No other splits are expected at this time but with share prices at all-time highs, it may happen again.
McDonald’s Analyst Ratings
McDonald’s has a solid analyst following and usually comes with at least 20 or so current ratings. At the end of 2022, the stock was pegged at a "moderate buy." The price target tends to move higher over time and lead the stock higher with it.
McDonald’s Institutional Ownership
McDonald’s, despite its low 0.2% inside ownership, is one tightly held stock. The institutions hold about 70% and are, in general, net buyers of the stock although there are times when the balance shifts.
The public holds the other 30% in the form of shares, ETFs and other funds, of which there are many. Not only is the stock a member of the S&P 500, the world’s most closely watched and mimicked index, but the company is also a Dividend Aristocrat. That means it is in the Dividend Aristocrat Index and included in another few hundred index-tracking funds which broaden ownership and help support share prices.
McDonald’s has competition but don't spend time worrying about it. Other hamburger joints and fast food restaurants exist nearby at virtually every McDonald’s on the planet but none have the scale, reach, recognition or brand loyalty of McDonald’s.
Wendy’s, its closest competitor, edged out former No. 2 Burger King during the pandemic through international expansion but it is a mere 25% the size of McDonald’s. The No. 4 player, Sonic, is half the size of Wendy’s, so you can easily see the difference in scale.
It is possible that one of the smaller chains will come up with some winning combination, tactic or product but you can rest assured McDonald's will follow suit to maintain its No. 1 position and stay in the rankings as a top dividend choice.
Steps to Buy McDonald’s Shares for Dividends
You can easily buy McDonald’s stock for its dividends in a few simple steps. The stock is listed on the NYSE and available in most (if not all) brokerage accounts. However, the decision to buy McDonald’s stock may not be simple and comes down to your individual portfolio objectives. If you plan to tackle blue chip stocks, growth, dividends or dividend growth, McDonald’s stock may be a good fit.
Step 1: Open a trading account.
You need to open a brokerage account when you want to own McDonald’s stock. Many online brokerage accounts offer opportunities to purchase the stock and most banks allow you to purchase as well.
Step 2: Set your portfolio objective.
Next, set the portfolio objectives and determine your risk tolerance. Investors looking for blue chip safety, dividends and dividend growth may want to add McDonald’s to their portfolios. MCD belongs on any list of dividend stocks and examples of dividend growth stocks.
Step 3: Choose your entry targets.
The simplest way to buy McDonald's is at the “market price,” regardless of your fundamental or technical outlook. If you're a long-term buy-and-hold investor, this may work as regular investments and dollar-cost averaging play into the mix.
Others may require a more pinpointed approach that blends the fundamental and technical outlook. In this approach, investors should use well-recognized technical signals such as support, resistance, MACD and volume as well as the outlook for revenue, margin and earnings.
Step 4: Set the order.
Once you choose entry targets, it's time to enter the order. If you want to use a more pinpointed approach, you can either set a limit order for your stock or wait for the market to present an opportunity and then buy.
Step 5: Hold the stock.
The final step, other than selling, involves holding the stock. Once you purchase, holding the stock is the only requirement for investors who want to share in McDonald’s success.
Investors of record (those who have registered their ownership with the company’s agent) are entitled to voting privileges as well as the dividend payment and any capital gains the company may experience. Based on the stock's long track record of growth, investors with the fortitude to withstand the day-to-day and month-to-month swings in price stand to see their investments grow at a high single to low double-digit CAGR.
Fees for Investing in McDonald’s Stocks
Generally speaking, there are no fees to buy McDonald’s stock because most brokers have no-commission trading in most accounts. This may not be true in all cases but exercise caution when making any investment decisions. If fees are present, they should be included in any profit and loss calculations.
McDonald’s Dividend Growth CAGR
McDonald’s dividend growth CAGR is the compound annual growth of the distribution over time. This is usually expressed in a three- or five-year average but could be any time length. It is important as a measure of dividend health and attractiveness and may sometimes be a red flag.
For example, the McDonald’s CAGR was 8% in 2022, which is not an outrageously high number on its own. On the other hand, the payout ratio was a bit high at 57% and suggests an upcoming slowdown in the pace of dividend increases.
Dividend Capture Strategy for McDonald’s
To capture the dividend, you must buy the stock before the ex-dividend date to earn the next dividend payment. The ex-dividend date is the first day in the quarterly cycle that you can buy the stock and not receive the next quarterly dividend payment. To earn the dividend, you must buy the stock before the ex-dividend date and then hold the stock until the ex-dividend date or you won't qualify.
This is how an MCD stock buy works:
- Buy the stock as close to the ex-dividend date as possible, which could be as close as one day.
- Hold the stock until the ex-dividend date and then sell it.
- You earn a profit if you sell the stock at break-even or at a loss that is less than the dividend distribution.
McDonald’s: One Tasty Dividend Stock
McDonalds stock offers a dividend for income investors. Not only is it the world’s No. 1 hamburger chain, it is the largest fast-food operator by a very large margin. Its business is all but guaranteed over the next several decades while the competition catches up. In the meantime, it pays a healthy dividend.
The yield tends to be market-beating in the range of 2% but more importantly, its history of growth puts it on track for Dividend Aristocrat status.
The bottom line: Invest in stocks like McDonald’s to easily build a large dividend stock portfolio.
Companies Mentioned in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|McDonald's (MCD)||$289.91||+0.7%||2.10%||31.11||Moderate Buy||$306.83|
|Restaurant Brands International (QSR)||$76.38||+1.4%||2.88%||23.29||Moderate Buy||$72.87|
|Jack in the Box (JACK)||$89.66||+2.6%||1.96%||12.70||Hold||$96.24|