McDonald's Increases Its Dividend -- What You Need to Know

With an impressive dividend history that goes back more than four decades, investors have come to expect a dividend increase from McDonald's (NYSE: MCD) every year. And the fast-food giant didn't let them down in 2018. On Thursday, the restaurant chain gave its dividend a nice double-digit increase, giving the company an impressive track record of 42 consecutive annual increases.

The strong dividend increase not only strengthens McDonald's value proposition as a dividend stock, but it also highlights how well the restaurant is doing.

A 14.9% increase

This year, McDonald's increased its dividend by 14.9% -- more than doubling the 7.4% growth in McDonald's dividend last year. This puts McDonald's quarterly dividend at $1.16, coming out to $4.64 in dividend payments annually. McDonald's forward dividend yield, or the company's planned dividend payments over the next 12 months as a percentage of its stock price, is now 2.8%.

Highlighting how significant a double-digit dividend increase is from McDonald's, this increase is also well ahead of the company's average dividend growth over the last five years. During this period, McDonald's dividend has averaged just 6% annualized growth.

CEO Steve Easterbrook credited the acceleration in the company's dividend growth to its strong crash flow under its Velocity Growth Plan and management's confidence that the plan "will deliver sustained, long-term profitability for our system and our shareholders."

Management also said the Tax Cuts and Jobs Act of 2017 played a role in giving the company "increased capital allocation flexibility."

The first quarterly dividend is payable on Dec. 17 to shareholders of record on Dec. 3.

A healthy dividend stock

McDonald's robust dividend increase comes as the company is performing exceptionally well. In McDonald's most recent quarter, for instance, global comparable sales were up 4% year over year. In addition, systemwide sales were up 5% in constant currencies. Adjusted earnings per share for the period increased 15% year over year, or 12% in constant currencies.

On the heels of this momentum, alongside its dividend increase announcement, McDonald's reaffirmed its long-term financial targets for the period beginning in 2019. Management expects systemwide sales growth between 3% and 5%, an operating margin around 45%, and EPS growth in the high single digits.

McDonald's sharp acceleration in its dividend growth and management's confidence in the company's long-term outlook capture just how well McDonald's has been doing recently. Further, the fast-food giant's bigger dividend now gives the company a meaty dividend yield. A forward yield of 2.8% is a full percentage point higher than the average dividend yield of stocks in the S&P 500.

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Daniel Sparks has no position 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.