What McDonald’s actually does
McDonald’s is the world’s best-known fast-food chain, headquartered in Chicago. It began as a single restaurant in San Bernardino, California, in 1940 and grew into a global brand. The company is part of the Dow Jones Industrial Average.
How the business makes money
McDonald’s is far less a restaurant operator than a franchisor and landlord. The large majority of its restaurants are owned and run by independent franchisees. McDonald’s collects rent and royalties from them, and in many cases owns or leases the land and buildings.
That model produces steady, high-margin income that is less exposed to food costs than the restaurants themselves. It also shares the risk with franchisees, who bear the day-to-day operating costs.
The dividend story
McDonald’s has increased its dividend for more than 25 consecutive years, which makes it one of the S&P 500 Dividend Aristocrats. It pays quarterly. The yield is modest and the raises have been regular.
Consistency comes from the stable franchise income, but the dividend still depends on keeping customers coming through the doors.
What to keep an eye on
- Consumer spending. Value-seeking customers can switch to cheaper options in a slowdown.
- Costs for franchisees. Wage and ingredient inflation squeeze their margins.
- Health trends and competition. Preferences change, and rivals fight on price and menu.
- Debt. The company uses borrowing to fund buybacks and dividends.
Quick take
McDonald’s combines a global brand with a franchise model that generates dependable cash. It is a good example of a dividend grower built on rent and royalties.