These companies have impressive dividend track records.
These companies have impressive dividend track records.
It's crucial for a company to produce earnings growth. That should translate into cash flow. Companies can use that operating cash flow for capital expenditures to invest in the business's long-term growth. What's leftover is free cash flow (FCF). If companies have ample FCF, they can reward investors by paying dividends.
Of course, investors need to pick companies that have strong long-term business fundamentals and sustainable FCF. McDonald's (MCD +1.46%) and Home Depot (HD +1.83%) certainly qualify. Here's why you should them now.
Many people around the world recognize McDonald's famous golden arches. Its business model and how the company makes money isn't as well known, however.
The company ended the second quarter with over 46,000 restaurants, but 95% were operated under a franchise agreement. It has a couple of different arrangements, but the key point is that the franchisee pays the operating costs and necessary capital expenditures. This asset-light business allows McDonald's to collect an up-front fee, an ongoing licensing fee (percentage of sales), and, in certain cases where it owns the property, rent.
Fortunately, sales have been growing, benefiting McDonald's. Its second-quarter same-store sales (comps) increased 1.3%. With its franchise model, higher sales, and improved profitability, McDonald's generates plenty of FCF. For the first half of the year, it had FCF of $3.7 billion. That gives it plenty of cushion to afford the $2.6 billion in dividend payments.
$246.21+$3.54 (+1.46%)
NYSE · As of 12:15 PM ET 10/20/26
Historically, the company has shown a strong commitment to raising dividends. Last month, the board of directors announced it would boost the December quarterly payout by 3.8% to $1.93. That marked 50 straight years of increases, meaning that McDonald's joined the ranks of the Dividend Kings. That's an impressive group of companies with at least 50 consecutive years of dividend hikes.
At the new $1.93 rate, the company will pay an annualized dividend of $7.72 per share. That equates to a 3.2% dividend yield. That's more than triple the S&P 500 index's 1%.
Averytin News Financial update.