Tuesday, June 14, 2011

McDonald's Has A Solid Dividend

There are quite a lot of good dividend stocks that investors can take advantage of right now. A perfect example of this is a stock like McDonald's. McDonald's is cited as the fast food king and a company that is known for tremendous growth over the years. You cannot go anywhere without seeing a McDonald's on the corner and lots of cars lined up everywhere. Investors have often lined up to buy the company's shares as well because of the great growth. McDonald’s is the most popular fast food restaurant in the industry. Everyone goes to McDonald’s. Whether it’s the Big Mac, the milkshakes, salads, crispy chicken wraps, ice cream cones or the fries; customers flock to McDonald’s by the millions. . McDonald’s is a great earnings company with over $24 billion dollars in annual revenue.

The stock trades at just over $81 per share right now.. This values the company at 16.times earnings. This is not a high multiple based on past growth but is high compared to future forecasts. McDonald’s is projected to grow earnings at a 10% clip over the next few years.

Now the company has easily become a great dividend play. The company has increased its dividend over the years and is now paying investors more than two dollars for every share of stock. The company is now yielding three percent which is pretty healthy for such a great company. This is a good time to take a look at the company's shares and see if it is right for your portfolio.

The payout rate is equal to 49% of earnings. The 3% yield is much higher than the average yield of 2.1%. More dividend increases are likely to come as McDonalds sees slower growth domestically. The company is still trying to increase revenue internationally. McDonald’s generates $6 billion dollars n cash flow and has nearly $2 billion dollars in cash on its balance sheet. The free cash flow payout ratio is 76.2 which is high but still relatively safe.

The stock is not cheap at its current price. If the current market pullback continues, investors should see if they can initiate a position in McDonald’s.
 

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