Dividendology on $MCD (Oct 27, 2026)

the first stock that just announced an increase in dividends is McDonald's, with an increase of 4%. So, it is an increase in dividends that technically exceeds the inflation rate .

In fact, McDonald's has suffered a lot over the past year. It has fallen by about 19%, and is relatively close to its lowest level in 52 weeks.

Looking at the stock's performance since the beginning of the year, it has fallen by about 18%, and the situation doesn't look much better if you look at the five-year chart. You can see that it has only increased by 6%.

Therefore, in terms of real returns including inflation, they are practically at parity, or rather a slightly negative return . However, trading at these prices significantly enhances its initial return .

If we move on to the dividend breakdown sheet , the data is loaded thanks to Ticker Data, and now the initial yield is exactly 3% . What is interesting here is to look at the historical return of McDonald's.

It has always been much closer to the 2% range. So, in fact, with the exception of 2020, this is one of the highest initial returns they have achieved since 2016. This is a unique scenario for McDonald's.

Historically, they have increased those distributions at a rate of between 7% and 7.5%. So, what does that tell us ? He tells us that this latest increase in dividends is less than the historical growth rate they are used to.

So, what's happening with this stock? Okay, there are a few things we need to point out. McDonald's revenue and profit growth has slowed considerably over the past few years, especially in the last year.

If we switch to a stock analysis tool and take a look at McDonald's, you'll notice that revenues have stagnated significantly over the past three years. It remained in the range of $25 to $26 billion, and profits did not see significant expansion either.

Furthermore, you will notice that they currently use about 70% of their free cash flow to pay dividends. To be fair, this was the historical range for this stock, but the company is still consuming a lot of its capital to maintain, pay, and increase these distributions.

In the second quarter, comparable global sales rose by only 1.3%, including just 0.8% in the United States.

But perhaps the most important thing is to look at it from a broader, holistic perspective. One thing you'll notice when comparing McDonald's stock to the yield on a 10-year bond is that we've seen an almost complete reversal.

When the yield on 10-year US Treasury bonds rose, McDonald's stock fell accordingly . What's interesting here is that if we look at last month, McDonald's has seen a slight improvement.

The stock has risen by about 6%, but ironically, we are facing the exact same case study. The yield on 10- year bonds has fallen. So, if we go to treasurybonds.com, and take a look at the yield curve.

Let's take a closer look at the US 10-year yield. You can see here, just over the past month, that the 10-year yield has declined. Now, why is this happening ? Well, the reason is that McDonald's has characteristics similar to bonds , most notably expected cash flows.

Although cash flows are not growing at a high rate, they have been relatively stable over the past few years. Meanwhile, McDonald's has now become one of the "dividend kings " stocks.

People often buy a stock for the return. But why would you buy McDonald's stock with a 3.11% yield if revenues aren't actually growing, when at the same time you can get a 5% yield on 10-year Treasury bonds ?

But more importantly, keep in mind that McDonald's is primarily a real estate company . Therefore, higher interest rates mean much higher borrowing costs, which will clearly have a significant impact on the company's fundamentals.

Therefore, Treasury yields play a key role in the valuation and price movement of McDonald's stock that we see.

Even if we look at it through the lens of the dividend discount model , we will move on to take a look at the dividend discount model. If we look closely , we will notice that even if we assume a 5% future growth in McDonald's dividends , which is a very generous assumption in the short term, the stock is worth only $215 per share.

This represents a 14% decrease from current prices. So, even with the stock trading at one of its lowest earnings multiples in the past five years , you can see there's a reason for that.

The interest rate environment in which we operate has changed dramatically. McDonald's was severely affected by this . Revenue and profit growth has slowed considerably, justifying a lower valuation, in addition to higher Treasury bond yields which also justify a lower valuation.

It is certainly not encouraging to see dividend growth at roughly half of its historical levels.