U.S. markets have defied pessimism over the conflict in the Middle East and inflationary pressure arising from higher energy prices, and are trading near their all-time highs. However, the tide hasn’t lifted all boats, and McDonald’s Corp (MCD) is trading near its 52-week lows, underperforming the markets by a wide margin.
Meanwhile, McDonald’s is a dividend aristocrat and has increased the payouts for nearly five decades. Moreover, given the disconnect between its dividends and price action, the stock’s dividend yield has risen to around 2.7%, which is over twice what the average S&P 500 index ($SPX) constituent pays. But is MCD a “Buy,” particularly for investors looking for dividend stocks?
Why Is MCD Stock Falling?
McDonald’s is facing pressure from higher inflation. On one level, higher gas prices are hurting low- and middle-income families, which is the company’s core demography. As CEO Christopher Kempczinski said during the Q1 2026 earnings call, “when you have elevated gas prices, which is the core issue that I think we're all seeing about it in the press right now, gas prices, inflation on that, that is going to disproportionately impact low-income consumers.”
Commenting on consumer sentiment, Kempczinski said that “it's certainly not improving, and it may be getting a little bit worse.” Kempczinski is not wrong, as April consumer inflation rose by 3.8%, which was higher than expected and marked the biggest annual rise in nearly three years.
Higher cost-push inflation could also squeeze MCD’s margins, as higher oil prices are leading to higher prices for other goods. To sum it up, McDonald's is among those companies at a significant risk from higher gas prices.
McDonald’s is also facing a higher base effect in the current quarter as it struggles to beat its own high performance from 2025, specifically citing the difficulty of topping last year's highly successful Minecraft promotion. The company sees “meaningful deceleration” in Q2 same-store growth from the 3.9% that it saw in the U.S. market in Q1. However, it expects the same sales growth in both the U.S. and International markets on a two-year basis.
McDonald’s Stock Forecast
While McDonald’s Q1 earnings came in ahead of estimates, management’s cautious tone on the Q2 outlook spooked markets. Several brokerages, including Wells Fargo, JPMorgan Chase, RBC, and KeyCorp, lowered the stock’s target price following the confessional. However, CFRA upgraded the stock from a “Hold” to “Buy.”
Overall, McDonald’s has a consensus rating of “Moderate Buy” from the 36 analysts polled by Barchart, while its mean target price is $335.64 is 22% higher than the current price levels. Meanwhile, the stock trades even below its Street-low target price of $290.
McDonald’s Capital Allocation Policy
McDonald’s first capital allocation policy prioritizes investing in business growth, followed by dividends and share repurchases. The company’s dividends have grown at an annualized rate of 7.6% over the last five years, which is a reasonable yardstick for future expectations given the company’s expected earnings growth.
McDonald’s has a dividend payout ratio of around 60%, which looks comfortable. Moreover, despite all the recent headwinds, it generates healthy free cash flows (FCFs) with a trailing FCF margin of around 25%. The FCF margin has dipped over the last year, but they are still quite comfortable.
Should You Buy MCD Stock?
While stock markets at record highs might show a rosy picture of the world’s largest economy, the average consumer is paying the price of the Iran war in the form of higher gas prices, and MCD is among those stocks whose business is getting impacted by the deterioration in the macro environment.
From a valuation perspective, McDonald’s trades at a forward price-to-earnings (P/E) multiple of 21.5x, which is slightly below the average multiple over the last three years. However, I don’t find the valuations compelling enough to trigger a purchase as yet. That said, I will have the stock on my watchlist for any further decline, which could make the stock attractive.
On the date of publication, Mohit Oberoi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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