McDonald's has outperformed the S&P 500 over the past decade and beat the market during the two most recent recessions. In 2008 MCD gained 8.59% while the S&P 500 fell about 38%. During the 2020 pandemic McDonald's stock rose 11.3% in 2020 and 27.79% in 2021, and has not had a down year since. The company's balance sheet emphasizes real estate and a franchise model that shifts daily volatility to owner-operators and benefits from consumers trading down. McDonald's generated positive free cash flow through both crises and has increased dividends for 49 consecutive years, yielding about 2.25%.
In 2008, as Lehman Brothers collapsed, the S&P 500 shed 38.49% of its value for the year. Almost all stocks fell by a third or more, and investors cashed out of the sturdiest of companies as confidence in the economy started dwindling. However, a single dividend payer actually gained 8.59% in 2008 . That dividend stock is . ran a piece in February 2009 titled "McDonald's Loves Your Recession".
In 2020, restaurant businesses were being pummeled . Very few people were eating out, and entire industries froze. Even then, McDonald's kept drive-thru lanes humming and dividend streaks intact. This led to MCD stock rising 11.3% in 2020 and then 27.79% in 2021. It has not had a red year since.
The company's balance sheet is built less on food and more on real estate. Its franchise model shifts day-to-day volatility to thousands of owner-operators, and its menu ends up thriving when consumers trade down from pricier options. These traits have allowed the company to post positive free cash flow in every quarter of both crises, funding dividends that have now grown for 49 consecutive years. In one more year, MCD will become a Dividend King stock. There are only 55 such stocks.
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