In a market filled with uncertainty, McDonald's CEO Chris Kempczinski provided income investors with a vote of assurance during his interview with CNBC today:
"The dividend for us is a paramount priority and so there's no changes planned for that."
McDonald's is one of the few restaurant stocks positioned to continue its dividend during the coronavirus pandemic. Mr. Kempczinski said that only 50 of the company's 14,000 U.S. restaurants are closed, and that's only because they were located in larger buildings such as offices which are no longer open.
McDonald's generates the majority of its business through drive-thru, delivery, and curbside pick-up, positioning it better than most to continue operating. Given people's essential need for food, management expects governments will ask them to remain open.
The vast majority of McDonald's locations are also franchised, shielding the corporation's cash flow from some of the high fixed costs associated with company-operated properties.
However, McDonald's wants to provide assistance to its franchisees to keep them viable and open. For example, Mr. Kempczinski mentioned that the rent franchisees pay is charged as a percent of sales, providing some relief as business fluctuates.
Overall, McDonald's appears to be in a relatively decent spot to manage through this crisis.
Thanks in part to its decision to suspend share repurchases several weeks ago, the company has the financial strength to maintain its commitment to housebound Americans in need of an affordable indulgence while also fulfilling its obligations to shareholders:
"We came into this crisis with really fantastic performance...we have the best balance sheet in the industry so we feel confident about our ability to both make sure our systems can continue to function and also make sure we fulfill our obligations to shareholders."
As for the future, no one knows when life will return to normal in America. In China, McDonald's said 95% of its restaurants are open again, but demand has not been a V-shaped recovery. Consumers are returning to stores much more gradually, and delivery demand remains very strong.
While many investments face an unprecedented amount of near-term uncertainty, McDonald's appears positioned to remain a source of stability for dividend investors as our nation comes together to get through this time of crisis.