InvestorsObserver Weekly Article

In partnership with InvestorsObserver, we are pleased to provide a new Featured Article every week. Get InvestorsObserver's free report "18 Warning Signs to Know When to Dump a Stock" and read all four articles plus more expert analysis every each week.

The InvestorsObserver articles are provided by Fresh Brewed Media/O2 Media, LLC (“FBM Content”). The FBM Content, including any strategies discussed therein, is provided for general informational and educational purposes only and is not to be construed as investment advice or as an endorsement, recommendation or solicitation to buy or sell securities. In order to simplify the computations, commissions, fees and taxes have not been included in the strategy examples used in the FBM Content. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Investors should consult their tax advisor about any potential tax consequences. Use of the FBM Content is subject to the Terms and Conditions of the CBOE Website.

Article Archives

Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
Author Bio


September 19, 2016 - McDonald's May Announce Dividend Increase

What's Happening

Fast food leader McDonald’s (MCD) has an impressive 39-year streak of dividend increases, and it may extend that streak as early as this week. MCD shares have been stuck in a fairly tight sideways pattern so far in 2016, with shares down a modest 2.5% on the year.

Technical Analysis

MCD was recently trading at $115.19, down $16.77 from its 12-month high and $19.41 above its 12-month low. Technical indicators for MCD are bearish and the stock is in a weak downward trend. The stock has recent support above $114.10 and recent resistance below $119.25. Of the 23 analysts who cover the stock, eight rate it a "strong buy", one rates it a "buy", 12 rate it a "hold", one rates it a "sell", and one rates it a "strong sell". The stock receives S&P Capital IQ™s 4 STARS "Buy" ranking.

Analyst's Thoughts

Historically, McDonald’s has announced its dividend increases during the third week of September, but it did stray from that schedule last year, waiting until mid-November to announce its increase last year. I expect the company to return to its normal schedule this year, and believe the company will announce its next increase this week. The company has a payout ratio of 63.9%, which is a bit high, but not too high to keep McDonald’s from joining the exclusive list of companies with 40-year streaks of dividend increases. Last year the company boosted its dividend by 4.7%, and in the previous year it raised its distribution 4.9%. Given the high payout ratio, I would expect a similar increase this year as well. Look for the quarterly distribution to rise from $0.89 per share to $0.93, which would translate to an increase of 4.5%. The news could come as early as this week, with the stock trading ex-dividend during the final week of November. Last year it moved the announcement back until the second week of November, but the ex-dividend date range did not change, so even if the company does postpone the announcement, the stock should still trade ex-dividend during the final week of November.

Stock Only Trade

If you're looking to establish a long stock position in MCD, consider buying the stock under $115.25. Sell if it falls below $103.75 or take profits if it gets to $132.50.

Bullish Trade

If you want to set up a bullish hedged trade on MCD, consider a November 95/100 bull-put credit spread for a 20-cent credit. That's a potential 4.2% return (24.1% annualized*) and the stock would have to fall 13.0% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a November 125/130 bear-call credit spread for a 25-cent credit. That's a potential 5.3% return (30.5% annualized*) and the stock would have to rise 8.7% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a December $120.00 covered call. Buy MCD shares (typically 100 shares, scale as appropriate), while selling the December $120.00 call for a debit of $113.75 per share. The trade has a target assigned return of 5.4%, and a target annualized return of 21.9% (for comparison purposes only).

Articles and other Content