Dividends are a very good indication of investment quality.
They show the company is confident in the future and has a profitable business model, because it has to set that money aside every quarter before it does anything else.
Once companies start paying dividends they tend to increase their payments. If the shares are reinvested through dividend reinvestment plans (DRIPs), the compounding effect is powerful.
Studies suggest that dividends could supply as much as 70% of long-term returns.
Here are updates on two industry leaders increasing their dividends with the December payment.
McDonald’s (NYSE: MCD) Recent close $281.84. (All figures in U.S. dollars.)
Background: McDonald’s is the largest and best-known fast-food franchise in the world, with 37,000 restaurants in 120 countries. Almost half of its outlets are in Asia or other emerging markets, although the US remains its largest single market.
Performance:Â The shares are up 7% year-to-date.
Recent developments: McDonald’s loyalty program has topped 50 million active users and it has been investing in online and mobile ordering to meet rising traffic at drive-throughs and customers pre-ordering for pickup. As reported by the New York Times recently, drive-throughs now account for two-thirds of all fast-food purchases in the US.
McDonald’s reported better-than-expected results for its third quarter ended Sept. 30. Revenue and profit beat expectations, even as the company raised prices in the face of inflationary pressures.
In the quarter, system-wide sales, which includes all franchised and company-owned outlets, rose 11%. Notable was that traffic among US customers earning less than $45,000 fell, but McDonlds gained market share among middle- and high-income customers. That signals that those diners are trading down from more expensive options.
Revenue rose 14% to $6.69 billion with same-store sales globally rising 8.8% in the quarter. Net income was $2.32 billion ($3.17 per share), up 22% from a year earlier.
Dividend: With the December payment, McDonald’s will increase its quarterly dividend for the 47th consecutive year. The 9.9% move to $1.67 quarterly ($6.68 a year) yields 2.27% at current prices.
Microsoft (NDQ: MSFT)Â Originally recommended on Apr. 9/18 at $90.77. Closed Friday at $369.42. (All figures in US dollars.)
Background: Microsoft is the world’s largest software company. Its Windows operating system runs on about 90% of the world’s personal computers. Microsoft also owns LinkedIn and markets the Xbox gaming system.
Performance:Â The shares are up 58% year-to-date.
Recent developments: Microsoft reported solid first-quarter results with both revenue and profit beating expectations. Its cloud computing business accelerated after two years of slowdown and overall earnings grew 27% as management reined in costs.
Artificial intelligence software, which has been the focus of attention for most of this year, is making modest contributions, which are better than expected. The outlook is positive.
In October, Microsoft closed its $68 billion deal for Activision Blizzard Inc., the gaming software maker. The purchase enhances its Xbox platform. Gaming has accounted for about 11% of overall revenue and grows considerably with the acquisition.
For the three months ending Sept. 30, which is the first quarter of its 2024 fiscal year, revenue rose to $56.5 billion, year-over-year. That was a 13% increase. Earnings per share of $2.99 were 11% higher. A research report by RBC Capital Markets called it a stand-out quarter and raised the target price to $390.
Dividend: Microsoft increased its dividend by 10% with the December payment, to $3 annually. That was its 10th consecutive year of increases. The stock yields 0.9% at current prices.
This article appeared in the Internet Wealth Builder on Nov. 21, 2023. For information on how to reprint this article please view this page.
Adam Mayers 
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