McDonald's Corporation (NYSE: MCD) just
announced it is raising its quarterly dividend by 6 percent to $0.94 per share. There is no surprise whatsoever, as the restaurant
chain has been consistently raising its dividend each year since it was instituted in 1976.
The stock reacted with a move to the upside despite the lackluster performance by the broader market in the wake of
uncertainties surrounding the OPEC deal agreed upon among the members of the cartel.
The company is due to release its quarterly results on October 21.
What's All The Hype About Dividends?
A dividend is considered a reflection the financial strength and stability of a company. Only if a company is generating enough
cash flows, it can afford to make a payout. Dividend also provides a stock with an attribute that makes it attractive to those
investors, who are enamored with a fixed income stream.
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Dividend Cut, Viacom Reaches Fork In The Road
Dividend paying companies are also considered safer bets and, therefore, could appeal to a risk-averse investor. Furthermore,
investors also look at a metric called dividend yield, which is the dividend amount/current stock price expressed as a
percentage.
This brings us to the next question ...
Is Dividend Payment Mandatory
The answer is no. As long as a company can convince investors it has several investment options ahead in order to plow back
profits and in turn reward investors through capital appreciation rather than paying out part of the profits as dividend, it can
refrain from a payout. The late Steve Jobs, the iconic founder of Apple Inc. (NASDAQ: AAPL), was a big fan of this theory, and Apple began rewarding investors with
lavish payouts only after Tim Cook took the reins.
Consistent Dividend Payers
AT&T Inc. (NYSE: T) has been raising its
dividend consistently for a little over three decades. Last December, the company announced a 2.1 percent raise in its annual
dividend, with the increase touted as the 32nd straight annual increase.
Not to be left behind, its telecom rival Verizon Communications Inc.(NYSE: VZ) announced a quarterly dividend in early September this year, which when annualized
represented a 5-cent per share increase. Verizon said this marks the 10th straight year it is raising its dividend.
Philip Morris International Inc. (NYSE: PM)
announced on September 14 a 2 percent increase to its quarterly dividend, translating to an annualized rate of $4.16 per share. The
company said then it has increased its annual dividend 9 consecutive times since becoming a public company in 2008.
Caterpillar Inc. (NYSE: CAT) has been
paying higher annual dividends for 22 straight years and since 2009, the company has raised dividend by 83 percent.
The Coca-Cola Co (NYSE: KO) claims on its
investor relations website that it has paid a quarterly dividend since 1920 and has increased dividends in each of the last 54
years.
A look at the stature of the companies shows that all of these are high profile, high quality blue chip names. The next time you
see a company flouting its dividend paying credentials, it may be worth the efforts to take a headlong plunge into it.
At the time of writing, the shares of McDonald's were up 0.56 percent at $115.83.
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