What McDonald's Latest Dividend Hike Means for Investors

outside of McDonald's drive thru restaurant at dusk — (Image credit: Robert Gauthier/Los Angeles Times via Getty Images)

McDonald's (MCD) gave income investors something to cheer about Thursday when the fast food giant announced another dividend hike, extending its long streak of annual increases.

The company's latest 6% raise brings McDonald's quarterly dividend to $1.77 per share, or $7.08 per share on an annual basis. This works out to be less than 60% of analysts' expected earnings of $11.82 for McDonald's full fiscal year, suggesting this payout is secure. The next dividend is payable on December 16 to shareholders of record at the close of business on December 2.

Incredibly, this latest increase marks the 48th consecutive year in which McDonald's has raised its annual dividend payment.

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Why McDonald's dividend hikes matter

Businesses with dependable dividend growth are important for several reasons. For one, "companies that raise their payouts like clockwork decade after decade can produce superior total returns (price change plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with," writes Dan Burrows, senior investing writer at Kiplinger, in his feature on the best dividend stocks for dependable dividend growth.

Indeed, MCD stock is up 12.6% on a price return basis over the past 12 months, but 14.1% higher when you add in the dividend. Over the past five years, McDonald's is up 58.8% on a total return basis vs 42.8% just based on price.

Additionally, dividend growers offer some peace of mind to investors. "After all, any company that manages to raise its dividend year after year – through recession, war, market crashes and more – is demonstrating both its financial resilience and its commitment to returning cash to shareholders," Burrows adds.

McDonald's decades-long streak of consistent dividend growth makes it a member of the Dividend Aristocrats, the best dividend stocks in the S&P 500 that have consistently raised their annual payouts for 25 straight years.

And if it makes it to 50 consecutive years of dividend hikes, McDonald's will join the elite group of Dividend Kings.

Is MCD stock a buy, sell or hold?

Analysts are upbeat toward the Dow Jones stock. According to S&P Global Market Intelligence, the consensus recommendation among the 37 analysts it tracks that are following MCD is a Buy.

However, analysts' price targets have struggled to keep up with McDonald's recent rally. Currently, the average analyst price target of $302.44 represents implied upside of less than 1% to current levels.

Financial services firm Jefferies is one of the more bullish outfits on MCD stock with a Buy rating and $330 price target.

"Management has focused on the 3 'Ds': digital, delivery, and drive-thru, and a '4th D' now in focus, i.e., an acceleration in new unit growth," said Jefferies analyst Andy Barish in a September 9 note. He added that his firm expects an operating margin in the mid-to-high 40% range and they see further acceleration in chicken sandwich momentum and rewards as potential drivers of near-term same-store sales growth.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.