Let’s take a closer look at whether McDonald’s stock dividend makes for a smart investment. First, we need to consider some key points regarding McDonald’s stock and how it’s valued:
For income investors aiming to minimize volatility, focusing on dividend yield and growth is crucial. My top choice among stocks with a strong dividend history is 3M, as it best meets these criteria. McDonald’s holds the second position due to its unique return patterns, which tend to have low correlation with other stocks, making it an essential addition to any income-focused portfolio.
Now, let’s dive into the strategy behind investing in McDonald’s stock dividends. Investors focused on building a portfolio for retirement typically look for stocks that they can hold long-term, mainly worried about dividend yield and growth rather than capital gains. As someone who invests in dividend growth, I suggest considering the stability of dividends and stock price volatility too. Steady dividends are clearly beneficial, but volatility matters because while capital gains might not be the main focus, heavy losses can cause stress. By examining criteria like Dividend Yield, Dividend Stability, Historical Dividend Growth, and Stock Price Volatility, I determined that 3M is the best choice for a retirement portfolio.
Moreover, McDonald’s shares have low correlation with those of 3M as well as other leading dividend stocks, making McDonald’s a great second choice in any portfolio to help lower overall volatility.
The basis for selecting McDonald’s stock was the list of Dividend Aristocrats from 2019, comprising companies that have consistently paid and increased dividends for over 25 years. Stocks on this list are also part of the S&P 500, which speaks to their size and liquidity. From this list, I picked the top 30 with the highest dividend yields since it’s a key source of returns for income investors. However, a high dividend yield isn’t always good; I prefer to bank on profit growth. We often aim for low-yielding stocks with high potential for future dividend increases, irrespective of the economic climate.
After examining the growth rate of dividends over the past decade, I found that the average dividend growth rate among these 30 stocks is 9%. Filtering out the below-average ones left me with 11 top half dividend payers with above-average or average growth. The next step was to assess stock price volatility. Though volatility isn’t necessarily negative, as it can reveal opportunities, I found that 3M had the lowest volatility among its peers, closely followed by McDonald’s. This aligns with my choice of 3M as my top pick among the Dividend Aristocrats due to its diversified business model and global presence.
In constructing an income-focused portfolio, my goal was to minimize volatility while maintaining a target dividend yield, using a mean-variance approach. When calculating combinations, it became clear that McDonald’s was the best pick to pair with 3M and reduced portfolio volatility. This reassured my finding that McDonald’s is always an excellent second choice.
In summary, while building a balanced portfolio, income investors should look beyond just dividend yield. Ideally, stock picking should involve business analysis, and portfolio management should employ Modern Portfolio Theory. Dividend investing can offer not only regular income but also the potential for capital appreciation. Is it better to focus on dividends or growth? The answer is a mix of both, capturing the benefits of compounding.
Ultimately, volatility should be on the radar for buy-and-hold income investors. With 3M emerging as the top choice amongst dividend aristocrats for a retirement or long-term income portfolio, adding McDonald’s not only complements the selection but also helps in reducing volatility.
If you’re interested, I’ve also examined Lowe’s stock dividend for those curious about Dividend King stocks. What are your thoughts on McDonald’s stock dividend? Share your insights below.