As we progress in our low-cost investment challenge for 2025, it’s time to reveal the fourth addition to the “£10-a-week Dividend Pie“. This week’s focus is on a well known company by everyone, McDonald’s Corporation (MCD), a global leader in the quick-service restaurant industry and a long-standing dividend growth champion.
Why McDonald’s?
McDonald’s Corporation is one of the most recognised brands worldwide, with a presence in over 100 countries and a portfolio of iconic menu offerings. Beyond its dominance in the fast-food industry, McDonald’s boasts a robust franchise model, delivering steady revenues and strong cash flows. As of January 16th, 2025, we have McDonald’s stock trading at approximately $279.31, with an annual dividend yield of 2.43%.
Dividend Overview
McDonald’s is an excellent fit for the “£10-a-week Dividend Pie” thanks to its consistent and reliable dividend payments:
- Current Dividend: The company pays an annualised dividend of $7.08 per share, distributed quarterly, so that is $1.77.
- Yield: With a yield of 2.43%, McDonald’s offers a steady income stream backed by its solid financials and global reach.
- Payout Date: The upcoming ex-dividend date for McDonalds is forecasted to be March 3, 2025, with a dividend payment scheduled for March 17, 2025, so we will qualify for the next dividend payment.
Dividend Growth
Dividend growth is what we like and McDonald’s has a strong history of dividend growth, having raised its annual dividend for over 45 consecutive years. The company’s commitment to increasing shareholder returns is evident in its consistent dividend hikes, averaging a compound annual growth rate (CAGR) of approximately 8% over the past decade.
Dividend Security
Dividend growth is important but more important is to ensure that we have a ‘safe’ dividend. Nothing is secured, but several factors underpin McDonald’s ability to sustain and grow its dividends:
- Franchise Model: Approximately 93% of McDonald’s restaurants are franchised, providing a stable and predictable income stream from franchise fees and royalties.
- Global Reach: McDonald’s diverse geographic footprint mitigates risks associated with regional economic downturns or changing consumer preferences.
- Cash Flow Strength: The company generates significant free cash flow, enabling consistent dividend payments and share buybacks.
- Brand Power: As one of the most valuable brands globally, McDonald’s retains a strong competitive edge, ensuring long-term customer loyalty.
Risks and Considerations
It seems all good, but remember that while McDonald’s is a resilient business, it’s essential to consider as well potential risks:
- Economic Sensitivity: Consumer spending on discretionary items, including dining out, may fluctuate during economic downturns, just remember what happened with covid-19.
- Commodity Prices: Rising costs for key ingredients could impact profitability, although it doesn’t look like a massive risk to impact dividends in the near term.
- Regulatory Risks: Increasing focus on health and nutrition, as well as labour regulations, may affect operations and costs, or they could be even fined!
Why McDonald’s Fits the £10-a-Week Challenge
We see this a good option as McDonald’s combines stability, brand strength, and consistent dividend growth, making it an ideal candidate for our dividend-focused investment pie. The yield might not big as big as we would like, but it is a long history of reliable payouts and steady increases, so we could ensure both current income and potential for future growth.
As always, remember that investing in individual stocks carries risks. Consult a financial advisor to ensure your investment strategy aligns with your goals and risk tolerance. This £10/ week investment challenge represents our personal investment journey and is not financial advice.
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