Dividend Increase | McDonald's Corporation (MCD)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks McDonald's for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On September 20th the Board of Directors at McDonald's Corporation (MCD) approved an increase to the quarterly dividend payment.  The dividend was increased from $1.16 up to $1.25 per share.  That's an solid 7.8% increase.  McDonald's is a Dividend Champion with 43 consecutive years of dividend increases.  Shares currently yield 2.38% based on the new annualized payout.

The newly increased dividend will be payable on December 16th to shareholders of record as of December 2nd.

Since I own 59.906 shares of McDonald's in my FI Portfolio, this raise increased my forward 12-month dividends by $21.57.  This is the 8th dividend increase I've received from McDonald's since initiating a position in June 2012.  So far McDonald's dividend payout has increased 78% since I purchased shares.

A full screen version of this chart can be found here.

Of the 43 1-year periods of McDonald's dividend growth streak, annual dividend growth has ranged from 4.4% to 133.3%.  The average 1-year dividend growth has come to 22.0% with a median of 11.4%.

Expanding the time frame out to the 34 10-year rolling periods dividend growth is still very impressive.  Annualized dividend growth has ranged from 8.7% to 40.1% with an average of 17.4% and a median of 15.4%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1976 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

McDonald's 5-year moving average forward dividend yield is 2.62%.  In order for McDonald's shares to yield that level the price would need to be ~$191 based on the newly raised dividend payment.

The fair value range for McDonald's, based on dividend yield theory, comes to ~$174 to $212.  Given the current share price around $210 McDonald's appears to be trading on the upper end of the fair value range.

When examining various multiples to get a feel for McDonald's valuation shares still look expensive.  Based on TTM data, the EV/EBIT ratio is 23.1x while the EV/EBITDA ratio is slightly better at 19.6x.  The EV/FCF ratio looks very expensive at 38.5x.  

Using more commonly cited P/E multiples, McDonald's still appears expensive.  Analysts expect McDonald's to have $8.02 EPS for the current year and $8.75 for FY 2020.  That puts the P/E multiples at 26.3x and 24.1x, respectively.

Wrap Up

This raise increased my forward dividends by $21.57 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.93% this raise is like I invested an extra $736 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 39 raises from 34 of the 54 companies in my FI Portfolio.  Combined the dividend increases have boosted my forward 12-month dividends by $285.31.

My FI Portfolio's forward-12 month dividends climbed to $7,471.67.  Including my FolioFirst portfolio's forward dividends of $100.08 brings my total taxable accounts dividends to $7,571.75.  My Roth IRA's forward 12-month dividends increased to $616.78.  My Rollover IRA's forward dividends remain at $2,200.61.  Across all accounts I can expect to receive $10,389.14 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  McDonald's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of McDonald's?  Do you think they can continue with high single digit dividend growth?

Please share your thoughts below.


  1. MCD seems to be firing on all cylinders as of late. I was quite pleased with that divvy raise and who would complain about that stock performance too? Geez, I remember not that long ago when MCD was written off for dead. I swear, CNBC, Bloomberg, any financial noise out there should be tuned out completely. Buy loved stocks, buy unloved stocks... it doesn't matter as long as you research and you make the decision.


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