Gotta catch them all – Pokemon!  Yes, the nostalgia is real and Pokemon is now ringing in the 25th Anniversary of the brand.  I used to own the Blue version and definitely had a stellar collection of the base set Pokemon cards, which is no where to be found now (no, I didn’t have a Charizard, but I did have plenty of 1st Edition holos!).

Pokemon & McDonald’s partnered up for the limited edition 25-card set for the Happy Meal. Not only are the price and value of Pokemon cards going through the roof, but now – Happy Meal sales stand to reach a similar height. The argument/discussion today begs the question, is McDonald’s (MCD) a stock to buy now with this Pokemon venture or do the metrics want to keep you on the sideline?

Pokemon 25th anniversary & McDonald’s

Pokemon and McDonald’s have teamed up together to celebrate their 25th anniversary, which right now – includes the highly valued holo Pikachu. This is a perfect storm, in my opinion. McDonald’s business model is already very slick and customer demand is always there. Then, you add the Pokemon craze that has been sky rocketing over the last 12 months, and you now have a rocket ship exploding at the moment.

Then, you add in McDonald’s incredible mobile application, and the orders for the Happy Meal, that contains the 3 pack of Pokemon Cards, literally surges through the roof.  In fact, MANY locations near us have been completely sold out.  Period.

Therefore, with Pokemon celebrating their 25th anniversary with McDonald’s, one has to expect/anticipate record sales for their Happy Meal – something like this reminds me of when McDonald’s teamed up with TY for the Little Beanie Babies – yes, you remember that craze!

Simply looking at the title of this article bodes well for McDonald’s (MCD) investors, one of our Top 5 Foundation Dividend Stocks.  McDonald’s is a dividend aristocrat, as well, increasing that dividend for 25+ years. Therefore, with all this craze & surge from Pokemon cards and the impact on McDonald’s, how does McDonald’s look like, as a stock to buy, right now?

McDonald’s (MCD) dividend stock analysis

It’s time to dive into McDonald’s (MCD) stock and see if it’s a stock to buy, with Pokemon really backing and pushing sales higher on the Happy Meal front.

How do we analyze this dividend stock?  By using the Dividend Diplomats Dividend Stock Screener, of course, focusing on 3 simple dividend metrics:

1. Price to Earnings Ratio – We look for a price to earnings ratio < than the overall Stock Market.
2. Payout Ratio – We aim for a payout ratio between of less than 60%.
3. Dividend Growth – We like to see history of dividend growth in a company.

McDonald’s (MCD) Stock Price:

McDonald’s (MCD) is at a blistering $213.90 as of February 12th close. Wow. It feels like it wasn’t too long ago you could buy McDonald’s (MCD) under $100. Given their adaptation to modern technology, with chains around the world, demand for McDonald’s has remained on a steady incline. Here is a look at the last 5 years of McDonald’s stock price:

In 5 years, the stock has more than doubled. As earnings has gone from $4.82 to $7.88 in 2019, but 2020 showcased an EPS to $6.31. How about the dividend stock metrics?

dividend diplomats dividend stock screener

1.) Price to Earnings Ratio: Given the share price is $213.90 and analysts are projecting $8.43 for the current year, this equates to a price to earnings (P/E) ratio of 25.37. This is below the S&P 500, but still is slightly pricey, right now, comparative to earnings.

2.) Dividend Payout Ratio: Now, we all know the perfect dividend payout ratio is between 40% and 60%. McDonald’s pays a quarterly dividend of $1.29 or $5.16 annually. Therefore, taking the dividend and dividing that over expected earnings of $8.43 for McDonald’s equates to a dividend payout ratio of 61%. McDonald’s is right at the ceiling in the 40%-60% payout ratio side.

This still shows McD’s has room to increase their dividend and let’s hope the Pokemon venture juices up earnings, to open up the payout ratio even more.

3.) Dividend Growth Rate / Dividend Growth History: McDonald’s is a dividend aristocrat. In fact, they are well on their way to being a dividend king, as they have a dividend increase streak of 44+ years.

The 5 year dividend growth rate is 8%. However, their last dividend increase was only 3.2%, going from $1.25 to $1.29 per quarter. This is definitely far from McDonald’s previous two increases of 7.8% and 14.9%. Can the Pokemon nostalgia boost up the potential for dividend increases?

*BONUS METRIC* Dividend Yield: Yes,as the bonus dividend metric, we’ll take a look at McDonald’s current dividend yield.  Keep in the mind, the S&P 500 currently yields ~1.65%.  At McDonald’s current payout of $5.16 and boasting a share price of $213.90, this equates to a dividend yield of 2.40%.

Definitely higher than the overall stock index AND higher than your high yield savings account.  I currently receive 0.50% at Ally and I know many use them, Marcus (Goldman Sach’s product) and Capital One savings.  Therefore, the 2.40% beats the index and almost is 5x higher than your interest rate on your savings account, not bad.

McDonald's (MCD) dividend stock analysis conclusion

Expectations for McDonald’s earnings have to be higher, given their venture with Pokemon, celebrating Pokemon’s 25th anniversary.  However, the question boils down to – is McDonald’s a dividend stock to buy now?

Well, at current prices and valuation, I would have to argue they are not an immediate stock to buy now.  In fact, I’d like a nice 10% discount to their price and would be interested in the $185-$195 range.  The price to earnings will be more palatable for me in that range and the dividend yield would be in the ~2.7% mark.

I own McDonald’s (MCD) stock and you can see my position in my dividend portfolio.  I currently am holding my position.  What else will I do?

Well, let’s say I had an “itch” and may have to go and get myself a Happy Meal and collect a pack or two of the Nostalgia, may even be lucky enough to open the rare, holo PIkachu!  Pokemon, you son of a gun, you’ve done it again!

Thank you for reading everyone – have you bought a Happy Meal lately?  Did you buy for the Pokemon 25th Anniversary pack?  Were you a Pokemon Fan back in the late 90’s?  Please share your thoughts below!  Lastly – do you own McDonald’s stock and/or think McDonald’s is a stock to buy now?

Good luck and happy investing everyone!