McDonald's Wants to Increase Its Dividend at the Expense of Profits

NEW YORK (TheStreet) -- McDonald's (MCD) finds itself in a bit of a pickle. It needs to be generous with its dividend-hungry shareholders at a time when the fast-food leader appears less concerned about doing so in a way that boosts earnings or increases sales.

This immense challenge comes at a time when its stock price has stalled and the company's plans for growth seem as bland as a salad without dressing. McDonald's competitive focus isn't even about besting other chains like Burger King (BKW) or Wendy's (WEN). MCD closed Monday at $102.03, up 5.1% for the year to date and 5.7% for the past 52 weeks.

Visit a McDonald's and you'll see what I mean. The company's McCafe coffee drinks and breakfast menu appear to be as center stage as its burgers and french fries.

McDonald's is going after the coffee crowd and has set it sights on taking business from Starbucks (SBUX) and Dunkin' Brands (DNKN). If you order Petite Breakfast Pastries with your coffee you'll understand how competitive McDonald's pricing is. It"s hard compete with the Golden Arches.

But the biggest challenge the company faces is the one it's created for itself. Last week at an investor conference McDonald's CEO Don Thompson said the company plans to bolster its payout to shareholders by as much as 20% over the next 30 months.

The company announced it plans to reward shareholders by returning upwards of $20 billion through stock buybacks and dividend increases by the end of 2016. That would amount to as much as a 22% increase in payouts from the previous three years ending in 2013.

This comes at a time when shares of McDonald's have already had a powerful move higher in just the past four months, as the year-to-date chart below illustrates.

MCD Chart
data by YCharts

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