A few weeks ago, we picked up some benjamins from McDonalds (MCD) in the amount of $72.42 (89 cents X 81.3707 shares). This is the fourth dividend payment in a row from MCD without a raise so we’re fully expecting to see one in the coming Q4-2016 dividend payment. Shares are up 20% in the past year and yield has fallen to around 3%.
McDonalds is one of those companies that everyone over at Seeking Alpha loves to debate. One side says that all the healthy food options available (albeit, more expensive food options) are disrupting McDonalds. Even not so healthy options like Shake Shack have better ingredients so McDonalds is on its way out. The other side argues that McDonalds is going nowhere because there will always be people who want to buy cheap food. Seriously, how many people are going to want to pay more than $10 for a basic burger combo when we have recession?
McDonalds has addressed investors’ concerns by starting to offer all-day breakfast and starting to source more healthy ingredients. We’re seriously not concerned in any way about the future of McDonalds. These guys have been running their business since 1940 and have increased their dividend every year for the past 40 years. They have over 36,000 outlets in 119 countries and people will always be queuing up to buy their food products.
The question we’re asking is what sort of raise we can expect to see in our next dividend payment. MCD’s payout ratio has slowly been trending upwards to where it sits now at 70%. The last raise we saw from MCD was in the amount of 4.7% which is just a bit less than the previous raise of 4.9%. Compare both of these raises with the 10-year dividend growth rate of 16.2% for MCD and it becomes apparent that they are becoming more cautious about doling out raises until they can make sure they see a very clear plan for growth in the coming years. We’re expecting to see a raise of around 4% and that’s just fine with us.