McDonald's Exit of Russia Not Expected to Impact Dividend Policy
McDonald's on Monday announced intentions to sell its Russian business, two months after temporarily suspending operations in the country due to the war in Ukraine.
While the humanitarian crisis in Ukraine is tragic and the headlines about McDonald's exit of Russia may create some anxiety for conservative income investors, these issues should not impact the firm's dividend policy.
The fast-food chain operates in over 100 countries, and its restaurants in Russia and Ukraine represented only about 2% of system-wide sales in 2021.
Maintaining the infrastructure of these locations costs McDonald's about $55 million per month, but that is a very manageable sum until the properties are sold given that the firm generates over $10 billion of operating income annually.
Even if earnings dip slightly before continuing their upward trajectory, McDonald's should maintain a healthy payout ratio in line with its historical norm.
Source: Simply Safe Dividends
Coupled with the firm's excellent cash flow and financial strength, including a BBB+ credit rating, we expect McDonald's to announce its 46th consecutive annual dividend increase in September, with mid-single-digit growth likely.
Overall, McDonald's remains a quality long-term holding for dividend portfolios thanks to its high-margin franchise model, large international footprint for continued growth, and valuable global brand.
