Many investors see dividend aristocrat McDonald’s (MCD) as a slam-dunk for big gains and another hike in 2016. Too bad – like many dividend growth disciples, betting on what they see in the rearview mirror. Year-to-date, McDonald’s stock has been piping hot: it’s surged 26% in 2015, good for the second-strongest rise among Dow Jones Industrial Average components, behind only Nike (NKE). But I’m concerned McDonald’s could give back much of that gain in 2016.
Right now, MCD’s payout ratio (or the percentage of earnings devoted to dividends) stands at a high 73.2%. That’s showing up in its dividend increases, which have been slowing for years: on November 10, McDonald’s announced a 4.7% hike to its quarterly payout, compared to a 4.9% rise in 2014, 5.2% in 2013 and 10.0% in 2012. My take: investors are making a big gamble on the fast food giant’s latest turnaround plan, but one good quarter does not a trend make. And if its dividend hikes slow further, the stock price could get fried. That’s why you’re far better off investing in another stock.
Source: InvestorPlace
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