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McDonald's (NYSE:MCD) Has Announced That It Will Be Increasing Its Dividend To $1.52

McDonald's Corporation (NYSE:MCD) will increase its dividend from last year's comparable payment on the 15th of March to $1.52. This makes the dividend yield 2.3%, which is above the industry average.

See our latest analysis for McDonald's

McDonald's' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, McDonald's was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

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The next year is set to see EPS grow by 54.4%. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

McDonald's Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from $2.80 total annually to $6.08. This implies that the company grew its distributions at a yearly rate of about 8.1% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

McDonald's Could Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. McDonald's has impressed us by growing EPS at 5.6% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On McDonald's' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While McDonald's is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for McDonald's that investors need to be conscious of moving forward. Is McDonald's not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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