McDonald's Corp (NYSE:MCD): A Reliable Dividend Stock with Strong Growth and Financial Health

Dividend investors frequently look for dependable, high-quality companies that provide appealing yields and show the financial stability to maintain and increase payouts over time. One way to find these stocks is by filtering for companies with strong ChartMill Dividend Ratings (7 or above), along with solid profitability (ChartMill Profitability Rating ≥5) and reasonable financial health (ChartMill Health Rating ≥5). This method balances yield with long-term viability, steering clear of companies where high dividends might indicate financial strain.

MCDONALD'S CORP (NYSE:MCD) stands out as a strong option under this strategy. The fast-food leader’s fundamentals match the criteria for dependable dividend investing, as outlined in its fundamental analysis report. Below, we explain why MCD is notable.

Dividend Strength

• Yield and Growth: MCD provides a dividend yield of 2.36%, slightly higher than the S&P 500 average (2.34%). While not the highest yield, its reliability is supported by a 7.43% average annual dividend growth over the past 10 years. This steady growth shows management’s dedication to rewarding shareholders, even during economic shifts.
• Track Record: The company has paid dividends for at least 10 straight years without cuts, making it a potential "Dividend Aristocrat"—a mark of trust for income-focused investors.
• Payout Ratio: At 60.41%, the payout ratio is higher but manageable given MCD’s strong cash flow. The report indicates that earnings growth (projected at 9.03% yearly) exceeds dividend growth, suggesting the payout is sustainable.

Profitability Supports Payouts

MCD’s ChartMill Profitability Rating of 8 reflects its earnings strength:

• Margins: Operating margins (45.86%) and profit margins (31.75%) rank among the best in the restaurants industry, offering plenty of room for dividend payments.
• Returns: A Return on Invested Capital (ROIC) of 18.02% is above the industry average, showing efficient use of capital to produce profits.

Financial Health Reduces Risk

With a ChartMill Health Rating of 6, MCD faces no immediate solvency issues:

• Balance Sheet: The company’s Altman-Z score of 4.98 indicates low bankruptcy risk, better than 85.5% of peers. Debt levels are reasonable, with a Debt-to-FCF ratio of 5.8 years (superior to 77% of the industry).
• Liquidity: Current and quick ratios (~1.2x) are sufficient to cover short-term obligations.

Valuation Considerations

MCD trades at a P/E of 25.5, slightly below the S&P 500 average (27.7) but higher than some competitors. The valuation is reasonable given its profitability and brand strength, though investors should consider growth expectations.

Final Thoughts

MCD represents a dividend stock that combines yield, growth, and safety—essential qualities for long-term income investors. Its global franchise model delivers consistent cash flows, while its financial metrics lower the risk of dividend cuts. For those valuing stability over the highest yields, MCD is worth examining.

To discover more dividend stocks with similar traits, check the full Best Dividend Stocks screener.

Disclaimer: This analysis is not investment advice. Always conduct your own research or consult a financial advisor before making investment decisions.