Costco vs. McDonald's: Which Dividend Stock Is a Better Buy?

When investors think of dividend stocks, they don't usually think of Costco Wholesale (NASDAQ: COST) -- a name with a yield of just 0.6%. And while McDonald's (NYSE: MCD) yields a more conventional 2.6% and trades at less than half the warehouse club's price-to-earnings ratio, that doesn't necessarily make it the better buy.

The two do share some similarities. Both are blue chip consumer giants with decades of dividend hikes behind them. And both have global footprints with the kind of pricing power smaller peers envy.

But once you look past the headline yield, the gap between the businesses gets harder to ignore. Here's a closer look at each company -- and which one looks like the smarter dividend pick today.

Image source: Getty Images.

Costco: growth that keeps surprising

The membership-based retailer just gave shareholders a fresh and impressive data point on Wednesday: April net sales rose 13% year over year to about $24 billion. Even more, total comparable sales climbed 11.6% over the four-week period.

Even after stripping out gasoline price changes and foreign exchange swings, and before backing out the roughly 1.5- to 2-percentage-point lift from an extra Easter shopping day, comparable sales still rose 7.8%. That's an acceleration from 6.2% in March.

And the trajectory remains strong when you zoom out. Costco's net sales for the first 35 weeks of fiscal 2026 reached $197.18 billion -- up 9.5%. And in the fiscal second quarter (the period ended Feb. 15, 2026), reported in early March, net income climbed nearly 14% year over year to $2.04 billion. Membership fee income during the period rose 13.6% in the quarter, with paid executive memberships up 9.5% to more than 40 million. That recurring membership fee stream is a big part of why Costco's dividend looks so dependable -- even at a low yield.

Speaking of the dividend: the warehouse club's board approved a 13% increase to the quarterly payout in April, lifting it from $1.30 to $1.47 per share. That marks 22 straight years of dividend hikes. Add in the company's history of paying special dividends about every three to five years (the last one came in late 2023) and total cash returns over time look better than the headline yield suggests.

But there are some risks, starting with valuation. The stock trades at roughly 47 times forward earnings. And the worldwide membership renewal rate of 89.7% in fiscal Q2 was down from 90.5% in the same fiscal quarter of 2025 -- a small slip, but one worth watching.

McDonald's: a bigger yield, but slow business growth

The fast-food giant's first-quarter results, reported Thursday, looked solid at first glance. Revenue rose 9% to $6.52 billion -- though much of that came from foreign currency changes. In constant currencies, revenue grew just 4%. Net income climbed 6% to $1.98 billion, and non-GAAP (adjusted) earnings per share reached $2.83, up just 1% in constant currencies.

Global comparable sales grew 3.8%, with the U.S. up 3.9% on positive check growth -- helpful, but a far cry from Costco's pace.

McDonald's CEO Chris Kempczinski didn't sugarcoat the backdrop on the earnings call. Asked about the consumer, he said, "I think probably it's fair to say that [...] it's certainly not improving, and it may be getting a little bit worse."

The dividend story, however, does shine here.

McDonald's pays $1.86 per share quarterly, or $7.44 annualized, for that 2.6% yield. The company also bought back 1.3 million shares for $393 million in the quarter. That's a meaningful capital return profile.

But the stock isn't quite the bargain it appears to be. Even after the recent slide (shares are down about 8% over the past month), McDonald's trades at about 23 times forward earnings, near its long-run average. And with management reaffirming a 2026 capital spending plan of $3.7 billion to $3.9 billion to support more than 2,000 net new restaurants, free cash flow may face some near-term pressure.

The verdict

Costco's valuation is unforgiving, and its yield is tiny. But the gap between it and McDonald's in terms of business momentum is substantial. The warehouse club is growing comparable sales roughly twice as fast as the burger giant.

Sure, McDonald's offers steadier near-term cash returns and a much higher dividend yield. But the consumer weakness its CEO flagged this week could weigh on results before things improve. For investors with a long-term time horizon, Costco still seems to be the better dividend stock to buy -- even at this price.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool recommends the following options: long January 2028 $320 calls on McDonald's and short January 2028 $340 calls on McDonald's. The Motley Fool has a disclosure policy.