As restaurant prices jumped 30% from 2019 to 2024, dining out got pricey, driving away diners and leaving operators scrambling to survive. Consequently, restaurants are leaning into digital innovation, delivery deals, and loyalty programs to cushion margins.
While McDonald's Corporation (MCD) underperformed earlier this year, the company is aggressively taking steps to navigate a tough consumer environment. A Dividend Aristocrat with nearly five decades of dividend hikes, McDonald’s has robust cash flow, a dedicated customer base, and a massive global footprint to help buffer against macro volatility.
For investors seeking reliable income and growth, McDonald's could offer a recipe for long-term success.
About McDonald's Stock
Chicago-based McDonald's Corporation (MCD), founded in 1940, has become a global icon, serving up more than just burgers. With over 40,000 locations in over 100 countries, the chain is a go-to for its fries, shakes, and burgers. MCD’s market cap currently stands at $208.7 billion.
Over the past year, shares of the fast-food giant have been on a slow simmer, inching up just 1.8%. But since hitting a 52-week low in early July, MCD has bounced back by 18.9%, narrowing its YTD loss to just 2.2%.
Priced at 24.52 times earnings, McDonald’s trades at a slight discount to its own 5-year average valuation.
MCD's Dividend History
McDonald’s has been rewarding investors with steady dividends for 48 years, thanks to its solid business model and strong brand equity, earning it the prestigious “Dividend Aristocrat” title – which references S&P 500 constituents who have paid and increased dividends for at least 25 consecutive years.
The fast-food giant declared a quarterly dividend of $1.67 per share on July 25, which works out to an annualized payout of $6.68 per share.
At current levels, MCD’s dividend yield is 2.31%, more generous than the S&P’s 1.28%. Plus, MCD’s 54.9% dividend payout ratio indicates the dividend is well-covered by earnings.
McDonald's Rallies on Q2 Earnings
McDonald’s fell short of consensus estimates in its Q2 earnings report, released on July 29, but the stock surged more than 5% on the news. After a poorly received Q1 earnings release, where the world's biggest fast-food chain was hit hard by inflation and higher costs, investors were relieved by management’s indications on the Q2 conference call that MCD’s promotional offers are starting to gain traction.
Revenue remained almost flat at $6.5 billion, while EPS dropped by 6.3% year over year to $2.97, marking a second consecutive EPS miss. Comparable sales also fell 1% annually.
On the conference call, Joe Erlinger, McDonald’s USA president, highlighted the success of the chain’s new promotion. “We’ve seen a lot of enthusiasm and the number of $5 meal deals sold are above expectations,” Erlinger noted.
McDonald’s is still eyeing growth, too, with a goal of 50,000 global locations by 2027 - meaning 10,000 new store openings are on the menu for the next several years.
Analysts tracking McDonald’s predict EPS dipping 2.3% to $11.67 in fiscal 2024 before bouncing back with a 7.7% rise to $12.57 in 2025.
What Do Analysts Expect for McDonald's Stock?
On Aug. 19, Evercore analysts raised their target price for McDonald’s to $320, reflecting optimism about the fast-food giant's brand recovery.
“We are increasingly bullish on McDonald’s U.S. business for 2025 with some relative market share trend improvement occurring recently which we believe will continue through [the second half of 2024],” wrote a team of analysts led by David Palmer.
Evercore also revised its same-store sales estimates, now expecting flat performance in fiscal Q3 instead of a 1% decline, with its 2025 outlook rising from 2% to 3%. The brokerage firm also expects upcoming Fed rate cuts to be supportive for MCD.
MCD stock has a consensus “Moderate Buy” rating overall. Among the 30 analysts in coverage, 16 suggest a “Strong Buy,” one advises a “Moderate Buy,” and the remaining 13 analysts recommend a "Hold."
The mean price target for MCD is $296.43, indicating an upside potential of 2.3% from current levels. The Street-high target price of $342 implies the stock could rally as much as 18%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
