McDonald’s Corporation (MCD): Is This Dividend Stock on the Value Menu?

Another option is Yum! Brands, Inc. (NYSE:YUM). Yum operates the Taco Bell, KFC, and Pizza Hut brands, and in terms of company revenue is about half the size of McDonald’s. Yum has a low dividend yield of about 1.87%, but the dividend growth prospects are exceptional. Yum pays less than 40% of earnings out as dividends, and an active share buyback program will help to keep that number low. The most recent dividend increase was a solid 17.5%.

In the short term Yum is facing some problems. The company is very dependent on China, and the recent publicity surrounding the avian flu has caused KFC sales to seriously suffer in that country. In May same-store sales in China dropped by 19% company-wide. The good news is that this is a temporary situation, and sales should eventually recover.

The bottom line

McDonald’s is fairly valued as a dividend stock, but there are better deals out there. While I won’t be adding McDonald’s to The Ultimate Dividend Growth Portfolio right now, I will add the stock to my Dividend Growth Watchlist with a buy target of $102 per share. McDonald’s is a fine addition to a dividend portfolio, but it’d be even better at a lower price.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends McDonald’s. The Motley Fool owns shares of Darden Restaurants and McDonald’s.

The article Is This Dividend Stock on the Value Menu? originally appeared on Fool.com.

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