We recently compiled a list of the 10 Best Blue Chip Dividend Stocks To Buy. In this article, we are going to take a look at where McDonald’s Corporation (NYSE:MCD) stands against the other blue chip dividend stocks.
When it comes to investing in stocks, investors often keep a close eye on the company’s financial health. Why? Because it directly impacts the potential returns on their investments. This is especially crucial for income investors, as solid financial health ensures regular dividend payments and steady dividend growth. In short, a company’s strong financial footing means it’s more likely to keep the cash flowing and the dividends climbing. Blue chip companies, especially those with over $100 billion in market cap, take the lead in this area. These firms are well-established, financially stable, and top players in their industries.
The Dow Jones Industrial Average is commonly regarded as an index of blue chip stocks. This widely watched stock market index includes 30 of the largest and most established publicly traded companies in the US. The index surged by over 4.7% since the start of 2024 and in the past 12 months, it gained 16.4%.
When comparing the performance of the broader market and the Dow Jones, both of which track large-cap U.S. companies, historical data reveals a high correlation between the two indices over time. However, there have been notable instances where their performances diverged significantly. According to a report from S&P Dow Jones Indices, the market substantially outperformed the Dow Jones over one- and three-year periods. Conversely, over the 30-year period leading up to 2019, the Dow Jones slightly outperformed the broader market. This indicates that although these indices often move together, short-term performance can vary, and specific market conditions and economic factors can influence which index performs better during different periods. The Dow Jones underperformed the broader market in 2023 by a wide margin.
While analysts frequently compare the performance of these two indices, it is important to note that the Dow represents only a small segment of the economy. In contrast, the broader market includes nearly 17 times as many companies. According to estimates from S&P Dow Jones Indices, more than $11.2 trillion investments were benchmarked to the broader market at the end of 2019. This is a staggering 350 times greater than the $32 billion benchmarked to the Dow. A key reason for the broader market’s outperformance compared to the Dow last year is that the market places more emphasis on the tech giants, which were the primary drivers of the wider market’s gains throughout the year.
Returning to the importance of blue chip companies, investors favor these firms because their strong financial health allows them to grow their dividends consistently. Dividend growth has remained a strong preference of investors over the years, prompting companies to increase their dividend payouts steadily. In this article, we will take a look at some of the best blue-chip dividend stocks.
Our Methodology:
For this list, we began by examining the current members of the Dow 30 that boasted a minimum market capitalization of $100 billion as of July 7. From this initial group, we specifically focused on companies that consistently pay dividends to their shareholders and have yields of at least 2%, as of July 7. These stocks were then ranked in ascending order of the number of hedge funds having stakes in them at the end of Q1 2024, as per Insider Monkey’s database. 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: 63
McDonald’s Corporation (NYSE:MCD) is an Illinois-based fast-food restaurant company. It posted strong earnings in the first quarter of 2024, reporting revenue of $6.17 billion, showing a 4.60% growth from the same period last year. The company has achieved positive comparable sales growth for 13 consecutive quarters, with a notable 30% increase over the past four years. Global comparable sales rose by 2% in the most recent quarter, driven by positive comparable sales in both the US and International Operated Market Segments.
Earlier this year, McDonald’s Corporation (NYSE:MCD) stock reached its highest-ever trading level at around $300 per share. However, concerns among investors about broader macroeconomic factors, inflation, and geopolitical tensions, have emerged as potential risks, signaling potential challenges ahead for the company’s performance. However, the company has consistently surprised its investors over the years. Despite encountering various challenges in the past, it has consistently rebounded and strengthened its operations. Not to forget the Great Financial Crisis of 2007, during which the stock delivered nearly a 36% return between July 2007 and July 2010.
These short-term headwinds were also noted by Carillon Tower Advisers in its Q1 2024 investor letter. Here is what the firm has to say about MCD:
“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) intends to maintain its expansion trajectory, aiming to reach 50,000 restaurants by 2027, up from its current count of over 40,000 locations.
McDonald’s Corporation (NYSE:MCD) currently offers a quarterly dividend of $1.67 per share for a dividend yield of 2.66%, as of July 7. It is one of the best dividend stocks on our list as the company has been growing its payouts for 47 consecutive years. The company remained committed to its shareholder returns over the years. In 2023, it returned $7.6 billion to investors through dividends and share repurchases.
Insider Monkey’s database of Q1 2024 indicated that 63 hedge funds held stakes in McDonald’s Corporation (NYSE:MCD), the same as in the previous quarter. These stakes have a total value of nearly $2.3 billion.
Overall MCD ranks 7th on our list of the best blue chip dividend stocks to buy. You can visit 10 Best Blue Chip Dividend Stocks To Buy to see the other blue chip dividend stocks that are on hedge funds’ radar. 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.
