My Top Dividend Stock To Buy In August
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You've probably noticed that the restaurant industry has been going through a rough patch lately. A lot of dividend-paying companies in this industry have seen their share prices take a hit, thanks to a mix of inflation and changing consumer spending habits.
Source: Seeking Alpha
Simply put, with everything getting more expensive, people are less inclined to spend money on dining out—even at places known for cheap eats, which actually aren't all that cheap anymore. We’re seeing this play out right now with McDonald’s (MCD), for example, which is my top dividend stock pick for August (you can learn about some of my other top picks here).
Instead of just adjusting prices with inflation, some restaurants have cranked them up even higher. In McDonald's case, while general inflation over the past decade was around 31%, they bumped their menu prices up by a whopping 100%, with most of that hike coming just in the last few years.
Source: Finance Buzz
This definitely raised some eyebrows with their customers, and rightfully so. After all, McDonald's used to be the go-to spot for affordable fast food. I mean, it didn’t get any cheaper than the Dollar Menu (RIP).
In an attempt to restore that image and win back budget-conscious customers, they've recently introduced a $5 meal deal, which actually seems to be paying off since the company decided to extend it. In their latest quarterly earnings call, they noted that 93% of their restaurants are sticking with the deal because it’s driving sales above expectations.
This positive response led to a slight surge in MCD's share price, with a near 5% gain for the month. However, looking at the bigger picture, the stock is still down about 12% year-to-date and around 11% over the last year—making it, in my opinion, prime for purchase.
With that said, it’s no surprise to see the share price taking a hit. As a consumer discretionary company, McDonald's is naturally affected by consumer sentiment and spending habits.
When people tighten their budgets, dining out is often one of the first things to go. However, McDonald's has a unique competitive edge that offers some resilience during tough economic times: its franchise business model.
Source: Investor Presentation
According to the company's investor presentation, 95% of McDonald's restaurants operate under this model, which helps to reduce the financial risks typically associated with running a restaurant chain.
In about 40% of these franchised locations, McDonald's doesn't invest any capital to open the restaurant. Instead, franchisees put up the funds, and McDonald's collects royalties from a percentage of the location’s sales. For the remaining 55%, McDonald's invests in the real estate and construction, acting as a landlord and collecting rent plus royalties.
Overall, this franchise model provides McDonald's with a more predictable and consistent revenue stream, which is especially valuable when consumers are clutching their wallets a bit tighter. It also helps them maintain higher profit margins compared to many of their competitors in the quick-service restaurant industry.
Long story short, although McDonald's has been going through a tough time, I think they're well-positioned to persevere, and the drawdown in share price is only creating a better buying opportunity.
Ten years from now, I'd be surprised if we were living in a world without the Golden Arches, and I'd be even more surprised if the company's 22-year dividend growth streak didn't continue throughout this entire time.
With that said, I want to hear from you: Which discounted stocks do you have your eye on for this upcoming month? Write to me here and let me know.
And a big thank you to all of the readers who responded to the last newsletter! You can read some of the responses down below in the "Hot Takes" section. 👇
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SINCE YOU ASKED 💬
"If you could start all over, would you just go with SCHD and not all those individual companies or would you do things the same way?"
- Mark | YouTube
When I first got serious about dividend investing, I loaded up my portfolio with probably 15-20 different stocks, maybe even more. You can see all the holdings I had in this video here.
If I could start over knowing what I know now, I would definitely take a different approach, but I wouldn't go all-in on SCHD or ETFs in general. Investing in individual stocks has taught me about a wide variety of subjects like accounting, economics, and psychology — things I might not have learned if I had just stuck with ETFs.
A lot of people find investing in individual companies to be a lot of work and don't understand the appeal, but it's a process I've come to really enjoy and I get a lot out of it. So, if I could start from scratch, I'd still want to invest in some individual stocks, but I definitely wouldn't need 15-20 of them.
As a beginner, I think the ideal portfolio setup for me would have been a mix of SCHD and VOO as the foundation, similar to what I now have in my Roth IRA, and then maybe about three individual stocks on top of that. The ETFs would have provided the diversification I was trying to achieve with the 15-20 stocks, while the few individual stocks would have been a great starting point in developing my stock research skills.
Overall, I think this sort of approach would have been much better than what I actually did, and would have offered the best of both worlds in a more streamlined way. I actually think this would be a great setup for anyone new to investing who feels the need to own individual stocks.
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers if they've ever held onto a stock longer than they should have. Here are some of the responses:
Matt said: I’ve owned several stocks for longer than I should have which something were SMCI, SOUN, and KVUE. I had bought these long before I knew and became a dividend investor. Thankfully I became one and figured out that they were not what I needed and writing off the losses on my taxes does help some.
James said: I actually did this with ZIM and NIO. I grabbed them up early in my investing and they both looked decent at least that’s what I thought. I held onto them to long thinking well it will make a comeback and believing they would. Well they never did so I dipped. I lost some money on them but overall learned big time that I need to focus on taking wins where I can get them at, doing more research and looking at graphs and lastly just trusting companies that have a reputation.
Tim said: I know about this subject first hand. A few years back, my wife inherited some Dominion (D) stock and at the time it was at around $82. So that price became our new cost basis for the stock. Shortly afterwards the stock tumbled and has been hovering around $55 for years. She doesn't want to sell it for sentimental reasons so I'm hoping it at least gets back to $80 something again. At least it's a good dividend stock.
Raysa said: I own BODI (Beachbody), and I kept purchasing in hopes that it would go up. BIG MISTAKE. I am currently down 95%, and at this point, I will just either wait for it to go up or disappear. This stock already did a reverse split 1:50, so I am down to only 10. This makes me really mad. But oh well.
LAST WORD 👋
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