Inflation is taking a measurable but modest toll on this company’s business.
This headwind, however, isn’t anything this well-loved brand hasn’t seen and survived before.
There’s a reason this familiar name has been able to raise its per-share dividend payment every year for nearly five decades now.
Need investment income? From a distance, it looks like income seekers are just out of luck right now. The S&P 500‘s trailing dividend yield currently stands at a record low of just over 1%.
Dig deeper, though. The index’s overall yield is only this low because a small handful of very large, non-dividend-paying tech companies’ stocks now account for a massive share of the S&P 500’s market value. There are still plenty of index stocks making solid, sizable dividend payments. Fast-food restaurant chain McDonald’s (NYSE: MCD) is one of them.
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In light of the stock’s 20% price pullback from its late-February peak, most investors clearly don’t agree with this call. But understandably so. The current economic backdrop (and inflation in particular) does not favor this company’s product and price points.
As CEO Christopher Kempczinski commented on the global economy during May’s Q1 earnings conference call, “It’s certainly not improving, and it may be getting a little bit worse.” To this end, last quarter’s same-store sales growth of 3.8% was a relative disappointment, as lower-margin “value” items have become an increasingly important part of its menu.
Now look at the bigger picture. This is nothing McDonald’s hasn’t seen and survived before. Given the cyclical nature of economic headwinds, the restaurant chain is likely to come out of this one at least as strong as it was when it began, making the stock’s slide since early March a great long-term buying opportunity.
It’s still not a growth stock by any means. McDonald’s remains a slow-and-steady value name. That’s just the nature of the well-saturated fast-food restaurant business.
Even so, this ticker’s recent weakness has made it an even more compelling income stock, boosting its forward-looking dividend yield to 2.8%. And that’s based on a dividend that’s now been raised for 49 consecutive years, underscoring the durability of this company’s business.
Before you buy stock in McDonald’s, consider this:
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends the following options: long January 2028 $320 calls on McDonald’s and short January 2028 $340 calls on McDonald’s. The Motley Fool has a disclosure policy.
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