This stock is poised to become the next dividend king

The company is expected to announce its 49th consecutive annual payout increase any time now.
The sheer size of the company has slowed its growth.
McDonald’s business model should ensure that the payout is sustainable.
10 Stocks We Like More Than McDonald’s ›

Dividend kings achieve this status by maintaining a streak of annual dividend increases of at least 50 years. With more than 10,000 shares currently traded on the US market, it is rare for a company to achieve this status; currently only has 56.

Still, several other stocks are on the verge of becoming Dividend Kings. This includes a prominent name in the consumer sector, and this approach only requires two payouts to rise to that status.

In the consumer market, the closest route reaches this point McDonald’s (NYSE: MCD). The fast food giant offered its first dividend in 1976. and has increased its payouts every year since.

Its most recent increase, which took place late last year, raised its dividend to $7.08 per share, up 6% from last year. Shareholders who invest now will earn about 2.3% in dividends, nearly double the 1.2% S&P 500. For longer-term shareholders, the yield is significantly higher due to the increasing dividend.

Also, this is around the time the company typically announces payout increases. Assuming this trend continues, the upcoming increase will be the 49th, with another boost in 2026. will make McDonald’s the dividend king in the fall.

Also, the payout seems sustainable. In the last 12 months, the company has distributed 4.66 billion in dividends to shareholders. During that time, it generated $6.90 billion. USD of free cash flow, and 2.24 billion USD left over for stock buybacks or investments in your business.

Dividends are a significant source of return for holding McDonald’s stock. The stock price has risen about 35% over the past five years. Due to dividends, the total return during that time was about 50%.

MCD data provided by YCharts.

Still, a more conservative approach can come at a cost. While shareholders have grown significantly during that time, the S&P 500 has had a total return of 105%. McDonald’s since 1990 significantly outperformed the index and increased the number of longest-serving shareholders, but the company’s sheer size could mean slower percentage growth.

Dividend investors will also like that McDonald’s business strategy offers the potential to generate significant free cash flow. Just under 95% of the company’s 44,000 locations are franchised. The company charges new franchisees an initial fee as well as costs associated with building and opening the restaurant.

McDonald’s owns these restaurant buildings, making the company one of the most prominent landowners in the world. It will then collect 4% to 5% sales royalties and a 4% marketing fee, along with other annual fees.

Because many of these costs are fixed, the company is less exposed to economic fluctuations that can affect sales. This likely helped boost dividends even in some of the worst economies.

McDonald’s is on track to reach Dividend King status by the end of next year, and more importantly, has a strong chance of retaining it.

Its size may slow its future growth, making it less desirable except for long-term and income-oriented investors.

Nevertheless, the franchise-oriented business model of the company encourages investors and provides a steady source of income even in more difficult times. This should keep free cash flow steady and allow for payouts and future increases.

As long as McDonald’s remains the preferred choice of franchise owners and customers, earning Dividend King status should strengthen the appeal of the consumer choice stock to income investors.

Before you buy shares in McDonald’s, consider this:

The Motley Fool Stock Advisor a team of analysts has just identified what they think is Top 10 promotions for investors to buy now…and McDonald’s was not one of them. The 10 stocks that made the cut could yield huge returns in the coming years.

Consider when Netflix you made this list in 2004 December 17th… if you invested $1,000 during our referral, you would have $646,805!* Or when Nvidia you made this list in 2005 April 15th… if you invested $1,000 at the time of our referral, you would have $1,123,113!*

Now it’s worth mentioning Stock advisor the total average return is 1,055%, a market-crushing advantage over the S&P 500’s 188%. Don’t miss the latest top 10 list you can find Stock advisorand join an investment community built by individual investors for individual investors.

View 10 promotions »

*Stock Advisor returns 2025 October 13

Will Healy has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This stock is poised to become the next dividend king was originally published by The Motley Fool.

Leave a Comment Cancel reply