What's Wrong With McDonald's Stock?

McDonald's (NYSE: MCD) has excellent fundamentals, and its stock offers investors an above-average yield. Yet, despite the market's uncertainty these days and many investors seeking safe dividend stocks, McDonald's hasn't been rising in value. In fact, the top restaurant stock is down around 11% this year.

The stock should arguably be in much higher demand. Instead, it's trading near its 52-week low and approaching a two-year low. What's wrong with the dividend stock, and could this be a good time to add McDonald's to your portfolio?

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Are investors bracing for worse results?

McDonald's has demonstrated strong resilience over the years. It's been able to adapt to changing consumer trends, and even increasing prices hasn't drastically hurt its business. While there has been some volatility in recent quarters, it has averaged a growth rate of over 5% in the past three years. It has also been improving of late, with sales rising by 9% in its most recent quarter.

MCD Revenue (Quarterly YoY Growth) data by YCharts

Investors may, however, be growing concerned about what lies ahead, as consumer sentiment has deteriorated and recently hit a record low. Although McDonald's business has been solid in the long run, in the short term, it may encounter challenges, and investors may be hesitant to buy the stock because of that uncertainty.

Plus, while the stock offers a 2.7% dividend, which is technically higher than the S&P 500 average of 1.1%, it may not be high enough to truly convince dividend investors it's worth buying for the payout, when there are still many other higher-yielding options out there.

Could McDonald's be an underrated stock to buy right now?

McDonald's typically isn't a stock you buy if you're after a top growth stock. It's the kind of modestly growing business you do want to invest in, however, if you want some stability and a growing dividend. McDonald's is a low-volatility stock that has increased its dividend for decades. While its yield may seem modest right now, it's likely to rise over the years, giving investors some incentive to just buy and hold.

The stock also trades at 23 times its trailing earnings, which isn't too expensive a valuation, and it's around what the average S&P 500 stock trades at as well. In five years, McDonald's stock has risen by around 17%, and while I don't expect the next five years to be a whole lot better for investors, this is primarily a stock you'll want to buy if you're looking for reliable, growing dividend income. If that's what you're after, then McDonald's can be a terrific buy right now. But if you're a growth-oriented investor, there may be better options to consider, with far more upside than McDonald's.

David Jagielski, CPA has no position in any of the stocks mentioned. 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.