McDonald's (NYSE:MCD) Will Pay A Larger Dividend Than Last Year At $1.52

The board of McDonald's Corporation (NYSE:MCD) has announced that it will be paying its dividend of $1.52 on the 15th of March, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 2.3%, providing a nice boost to shareholder returns.

See our latest analysis for McDonald's

McDonald's' Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite comfortably covered by McDonald's' earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

The next year is set to see EPS grow by 54.4%. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.

McDonald's Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $2.80 in 2013, and the most recent fiscal year payment was $6.08. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

We Could See McDonald's' Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that McDonald's has been growing its earnings per share at 5.6% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On McDonald's' Dividend

Overall, we always like to see the dividend being raised, but we don't think McDonald's will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments McDonald's has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for McDonald's that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.