Key Takeaways
- McDonald’s raised its quarterly dividend 4% to $1.93 a share in September, after Darden raised its own 8% to $1.62 in June.
- The two yield 2.9% and 3.0%, and each paid out 67% of its free cash flow over its latest twelve months.
- Analysts expect Darden’s free cash flow to fall 27% in its fiscal 2027, which would push its payout to 92%, against 73% for McDonald’s in 2026.
- McDonald’s U.S. comparable sales slipped 0.2% in the third quarter, and its national value launch in early 2027 is the next thing to watch.
McDonald’s (MCD) raised its quarterly dividend 4% to $1.93 a share in September. That’s half the 8% raise Darden Restaurants (DRI) gave its own in June, to $1.62.
Yet the two dividends look nearly identical today. Darden yields 3.0% and McDonald’s 2.9%, and each paid out 67% of its free cash flow over its latest twelve months.
So which is the better dividend stock?
| Metric | McDonald’s (MCD) | Darden Restaurants (DRI) |
|---|---|---|
| Dividend yield | 2.9% | 3.0% |
| Dividend growth, 5 years | 7.3% a year (fiscal 2020-2025) | 31.1% a year (fiscal 2021-2026) |
| Latest fiscal year’s dividend growth | 5.8% (fiscal 2025) | 7.1% (fiscal 2026) |
| Cash dividend payout ratio, TTM | 67% | 67% |
| Cash dividend payout ratio, forward | 73% (fiscal 2026) | 92% (fiscal 2027) |
| Net debt/EBITDA | 3.2x | 3.2x |
| Interest coverage | 7.8x | 7.9x |
Source: TIKR, Nov. 5, 2026. TTM is the twelve months to June 30, 2026 (McDonald’s) and Aug. 30, 2026 (Darden); forward is the consensus.
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McDonald’s is leaning on value
McDonald’s paid $5.22 billion of dividends over the twelve months to June 30, 2026. That took a comfortable 67% of its $7.76 billion of free cash flow. The consensus puts the ratio at 73% for fiscal 2026, which is still well-covered, with free cash flow expected to edge up 2%.
Free cash flow has covered the dividend every year for a decade. It rose to $7.19 billion in fiscal 2025 from $4.24 billion in fiscal 2016, while dividends paid climbed to $5.12 billion from $3.06 billion:
The business is mixed. Global comparable sales rose 1.5% in the third quarter and diluted EPS rose 10% to $3.51. But U.S. comparable sales slipped 0.2%, against a 2.4% rise a year earlier. McDonald’s is testing new value bundles in about 1,900 U.S. restaurants ahead of a national launch in early 2027. CFO Ian Borden drew the line on the August call: “We will not get beaten on value.”
Reuters reported on Nov. 4 that McDonald’s hired White & Case to defend it against a lawsuit alleging it uses AI tools to set prices at each restaurant. With no dollar figure attached, it doesn’t touch the dividend math yet.
Darden’s free cash flow is headed for a dip
Darden’s coverage today matches McDonald’s. Its $702 million of dividends over the twelve months to Aug. 30, 2026, took 67% of $1.05 billion of free cash flow. But analysts expect free cash flow to fall 27% in fiscal 2027, the year to May 2027, which would lift that ratio to a tight 92%.
That would end a steady run. Since fiscal 2022, the dividend has taken 60% to 64% of free cash flow each year. The chart’s one exception is fiscal 2020, when free cash flow fell to $251 million, below the $322 million Darden paid out. Dividends paid then shrank to $203 million in fiscal 2021:
Darden’s five-year dividend growth rate, 31.1% a year from fiscal 2021 to fiscal 2026, starts from that fiscal 2021 low. Its 7.1% rise in fiscal 2026 is the better guide to its pace now, and it’s still ahead of McDonald’s 5.8% in fiscal 2025.
The business is growing. Total sales rose 5.1% to $3.2 billion in the quarter ended Aug. 30, 2026, on blended same-restaurant sales up 3.1%. On Sept. 24, Darden reaffirmed, rather than raised, its fiscal 2027 outlook for diluted EPS of $11.10 to $11.35.
So which dividend wins?
McDonald’s is the better dividend stock, because its dividend has far more room in the year ahead.
Darden’s squeeze should be brief. The consensus has free cash flow dropping to $810 million in fiscal 2027, then recovering to $1.25 billion in fiscal 2028:
Four analysts make that estimate, and last year’s consensus came within 7% of the actual.
Still, Darden said on its June call that its cash generation is expected to provide “more than sufficient capacity each year” for needs that include “continued growth of our dividend.” At a 92% payout, there isn’t much left over.
This isn’t to say Darden’s dividend is unsafe. It pays the bigger check: $10,000 at its 3.0% yield pays $300 a year, against $290 from McDonald’s. At each dividend’s pace now, Darden’s would grow to about $558 in year 10, versus about $480 from McDonald’s, and McDonald’s never catches up. Call it a 5.6% yield on your cash today. But McDonald’s paid out more straight through fiscal 2020, when Darden’s payments shrank, and I’d rather own the dividend with the cushion.
Of course, McDonald’s needs U.S. diners back to keep its free cash flow growing, and its national value launch in early 2027 is the first real test.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
