The 10 Most Recession-Proof Dividend Aristocrats

#1 – McDonald’s

• 2007 through 2009 total return of 55.6% (versus -15.9% for the S&P 500)
• 2007 through 2009 maximum drawdown of 21.3% (versus 55.2% for the S&P 500)

McDonald’s Corporation (NYSE:MCD) golden arches are recognized around the world. The company is well-known for cheap food served quickly.

McDonald’s benefits from recessions in the same way that Wal-Mart does; it is known to be very cheap. When people try to conserve money, they switch to lower priced restaurants – it doesn’t get much lower priced than McDonald’s. The company’s reputation for cheapness is what drives solid results during recessions.

The Great Recession of 2007 to 2009 was beneficial for McDonald’s. The company’s stock gained 55.6% from 2007 to 2009 – that’s an outperformance of over 70 percentage points versus the S&P 500 over the same time period. McDonald’s earnings-per-share over the Great Recession are shown below:

• 2007 earnings-per-share of $2.91
• 2008 earnings-per-share of $3.67
• 2009 earnings-per-share of $3.98

From 2007 to 2008, McDonald’s grew its earnings-per-share by 26.1%. The next year (from 2008 to 2009), it grew earnings-per-share by 8.4%. McDonald’s grew rapidly during the last large recession.

With that said, the company has struggled in recent years. This has resulted in a CEO change and a streamlined focus on financial efficiency and operating speed and efficiency. McDonald’s Corporation (NYSE:MCD) is franchising more of its company-owned stores, and has plans to simplify its menu.

The company is well-positioned to take advantage of changing consumer preferences during recessions. McDonald’s has over 30,000 locations around the world – making it the largest restaurant chain in the world by a wide margin. The company’s tremendous scale means that when comparable store sales rise, McDonald’s will see a large influx of profits.

Fortunately for shareholders, McDonald’s is very shareholder friendly. The company has paid increasing dividends for 39 consecutive years. The company currently has a payout ratio of about 70% (using adjusted earnings) and a dividend yield of 3.7%. McDonald’s also regularly engages in share repurchases, resulting in further cash returns to shareholders.

McDonald’s Corporation (NYSE:MCD) currently has an adjusted price-to-earnings ratio of 18.8. The company appears to be either fairly valued or slightly undervalued given its high marks for safety and shareholder friendly management. Billionaires Larry Robbins and Daniel Och are among the top holders of the stock.

Disclosure: None