We recently published a list of S&P 500 Dividend Aristocrats List: Sorted By Hedge Fund Sentiment. In this article, we are going to take a look at where McDonald’s Corporation (NYSE:MCD) stands against the other S&P 500 dividend aristocrats.
The appeal of dividend growth growth stocks is unmatched. For those considering investing in dividend stocks, growth typically outweighs yield due to the consistent returns they have delivered over the years. Within dividend growth strategies, the dividend aristocrats stand out. Of the approximately 6,000 stocks listed on the NYSE and NASDAQ, only 67 companies earn the title of dividend aristocrats. These companies have consistently increased their dividend payouts for a minimum of 25 consecutive years. They are part of the broader market and are tracked by the Dividend Aristocrat Index.
Also read: 10 Best Dividend-Paying Stocks Under $50
Companies that regularly increase their dividends typically show strong financial health and stability, indicating their consistent profitability. A report by Fortune highlighted that, although it has lagged behind its benchmark, the Dividend Aristocrat Index has surpassed nearly all US active managers over the past decade. Rupert Watts, the head of factors and dividend indices at S&P Dow Jones Indices, discussed dividend growth strategies with the global media organization. Here is what the analyst said:
“Raising your dividend for 25 plus years is no easy feat. These are high-quality companies.”
Dividend aristocrats have delivered impressive returns, surpassing other asset classes. Since the index’s inception in 2005 through September 2023, the dividend aristocrats index has provided a total return of 10.35%, outpacing the broader market’s return of 9.54% for the same period. These stocks are celebrated not only for their dividend growth and steady equity gains but also for their lower volatility. During this timeframe, dividend aristocrats exhibited a volatility level of 15.35%, compared to the market’s slightly higher 16.31%. This indicates that dividend aristocrats tend to have more stable price movements. Their consistent dividend increases over 25 years or more demonstrate their ability to reward shareholders even during tough times, such as the 2007 financial crisis and the 2020 pandemic.
The debate between high yields and dividend growth continues. As of August 19, the High Dividend ETF, which tracks high-yielding companies in the broader market, offers a dividend yield of 4.18%. This yield would have been quite attractive to investors in the past. However, this year the ETF has only returned 4.8%, compared to the market’s 18% return. According to FactSet, investors have withdrawn over $1.1 billion from the fund, which is more than 15% of its $6 billion in assets. This indicates that investors tend to prefer dividend growth over high yields, as high yields are often seen as a sign of financial difficulties. In this article, we will take a look at some of the best dividend aristocrat stocks according to hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A cook in a busy kitchen assembling cheeseburgers for orders.
McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 67
An American fast-food restaurant company, McDonald’s Corporation (NYSE:MCD) ranks ninth on our list of the best dividend aristocrat stocks.
A few years ago, McDonald’s Corporation (NYSE:MCD) saw significant benefits during the pandemic due to rising prices. However, the current situation is different, as customers are now pushing back against higher costs caused by inflation. In response, the company has extended its $5 Meal Deal Promotion. McDonald’s management observed that consumer sentiment, especially among lower-income groups, remains weak across its key markets, with people being very selective in their spending. They expect these challenging conditions to continue for several more quarters, suggesting that consumers are finally resisting the substantial price increases in the fast-food industry in recent years. The stock is down by nearly 4% since the start of 2024 as the company has been facing some challenges due to ongoing geopolitical conflicts.
Carillon Tower Advisers also highlighted these issues in its Q1 2024 investor letter. Here is what the firm has to say:
“McDonald’s Corporation (NYSE:MCD) faces several short-term headwinds. Lower-income consumers have been cautious with spending, as they are feeling the cumulative effects of inflation more than higher-income cohorts. As the low cost/ value player in fast food, McDonald’s has a customer base that skews lower income. Also, as an international company, McDonald’s is feeling negative effects from war and tensions in the Middle East, as well as softness in China.”
McDonald’s Corporation (NYSE:MCD) showed signs of weakness in its second quarter 2024 earnings report. Global comparable sales dropped by 1.0%, with decreases seen across all segments, and quarterly revenues remained unchanged from the previous year. Despite these challenges, analysts have not been overly critical of the company’s performance. Due to its large size and scale, McDonald’s has considerable leverage to adapt through its purchasing power and marketing strategies.
McDonald’s Corporation (NYSE:MCD) currently offers a quarterly dividend of $1.67 per share and has a dividend yield of 2.33%, as of August 19. It is one of the best dividend aristocrat stocks on our list as the company has been growing its payouts for 67 years consistently.
The number of hedge funds tracked by Insider Monkey owning stakes in McDonald’s Corporation (NYSE:MCD) grew to 67 in Q2 2024, from 63 in the previous quarter. The consolidated value of these stakes is over $2.1 billion. With nearly 2 million shares, Viking Global was the company’s leading stakeholder in Q2.
Overall MCD ranks 9th on our list of S&P 500 dividend aristocrats. While we acknowledge the potential of MCD as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than MCD but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.