McDonald’s Corporation (NYSE:MCD) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 28th of February in order to receive the dividend, which the company will pay on the 16th of March.
McDonald’s’s next dividend payment will be US$1.25 per share. Last year, in total, the company distributed US$5.00 to shareholders. Based on the last year’s worth of payments, McDonald’s has a trailing yield of 2.3% on the current stock price of $215.87. If you buy this business for its dividend, you should have an idea of whether McDonald’s’s dividend is reliable and sustainable. As a result, readers should always check whether McDonald’s has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for McDonald’s
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. McDonald’s is paying out an acceptable 60% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
NYSE:MCD Historical Dividend Yield, February 23rd 2020
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, McDonald’s’s earnings per share have been growing at 10% a year for the past five years. McDonald’s is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, McDonald’s has increased its dividend at approximately 9.6% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
Should investors buy McDonald’s for the upcoming dividend? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That’s why we’re glad to see McDonald’s’s earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow – 60% and 63% respectively. In summary, it’s hard to get excited about McDonald’s from a dividend perspective.
Wondering what the future holds for McDonald’s? See what the 29 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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