Key Takeaways
- McDonald’s raised its quarterly dividend 4% in September, while PepsiCo cut its 2026 core earnings growth outlook in October.
- PepsiCo starts with a 4.3% yield against McDonald’s 2.8%, but McDonald’s grew its dividend a little faster from fiscal 2020 to fiscal 2025, at 7.3% a year against 6.9%.
- McDonald’s dividend used 70% of its free cash flow over the latest twelve months, against 75% at PepsiCo, which paid out nearly all of its free cash flow in fiscal 2024 and 2025.
- PepsiCo carries less debt, and the next thing to watch is whether its better cash flow holds while it works on its North American soft drinks.
Anyone hunting for dividend income will land on McDonald’s (MCD) and PepsiCo (PEP) sooner or later. And this fall, the two handed shareholders very different news.
McDonald’s raised its quarterly dividend 4% in September, to $1.93 a share. It then reported a 10% jump in third-quarter diluted EPS on Nov. 4. PepsiCo, meanwhile, cut its outlook on Oct. 8: it now expects 2026 core EPS growth of 2.5% to 3.5%, down from the low end of 5% to 7%.
But PepsiCo starts with the much bigger check, a 4.3% yield against 2.8% for McDonald’s. So which dividend pays you more over the next 10 years?
| Metric | McDonald’s (MCD) | PepsiCo (PEP) |
|---|---|---|
| Dividend yield | 2.8% | 4.3% |
| Dividend growth, fiscal 2020-2025 | 7.3% a year | 6.9% a year |
| Cash dividend payout ratio (TTM) | 70% | 75% |
| Net debt/EBITDA (LTM) | 3.2x | 2.0x |
| Interest coverage (LTM) | 7.9x | 14.9x |
| Forward P/E | 21x | 17x |
Source: TIKR, Nov. 9, 2026.
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McDonald’s has plenty of cushion
McDonald’s dividend is well-covered. It used 70% of free cash flow over the twelve months to Sept. 30, 2026. Free cash flow has topped dividends paid in every fiscal year since 2016:
Over the last five fiscal years, that payout ratio ranged from 55.2% in fiscal 2021 to 75.9% in fiscal 2022.
The business is growing, just not much at home. Global systemwide sales rose 4% to over $38 billion in the third quarter, and global comparable sales rose 1.5%. U.S. comparable sales slipped 0.2% on fewer guest visits. CFO Ian Borden said on Nov. 4 that U.S. comps returned to growth in September after declines in July and August. McDonald’s is also testing new entry-level bundles, with a national launch targeted for early 2027. As Borden put it on the second-quarter call: “We will not get beaten on value.”
McDonald’s does carry more debt, at 3.2x net debt to EBITDA. A proposed class action filed Oct. 2 alleges its AI pricing tool coordinates menu prices across restaurants, and McDonald’s calls the claims meritless.
PepsiCo’s coverage finally has some room
For years, PepsiCo had far less cash behind its bigger check. Free cash flow was $7.62 billion in fiscal 2016 and $7.67 billion in fiscal 2025. Over the same stretch, dividends paid climbed from $4.23 billion to $7.64 billion:
That left a risky payout ratio of 100.6% in fiscal 2024 and 99.6% in fiscal 2025. Over the twelve months to Sept. 16, 2026, the ratio improved to a more comfortable 75%. PepsiCo plans $7.9 billion of dividends for 2026, which is more than its free cash flow for all of fiscal 2025, so it needs that improvement to last.
PepsiCo’s growth is coming from abroad. Net revenue rose 5.6% in the third quarter, and international businesses delivered 45% of profit year to date. North American soft drinks are lagging, and CEO Ramon Laguarta said on the third-quarter call that “we’re not satisfied with the performance in the U.S.” Then, on Oct. 15, KFC said it will switch its roughly 3,700 U.S. restaurants to Coca-Cola starting in January 2027. Still, PepsiCo’s balance sheet is the stronger of the two, with 2.0x net debt to EBITDA and 14.9x interest coverage.
So which dividend wins?
Over the next 10 years, PepsiCo pays you more. At its 5-year growth rate of 6.9% a year, $10,000 in PepsiCo pays about $5,922 in dividends over the decade. The same $10,000 in McDonald’s, growing at 7.3% a year, pays about $3,925. That’s about $1,997 more from PepsiCo, and at those rates McDonald’s income wouldn’t pass PepsiCo’s for more than 30 years.
Some of that big starting yield also comes from a cheap stock. PepsiCo trades at 17x forward earnings, below its five-year average of 21x and not far above the 14x low it hit on Oct. 7:
That isn’t a knock on McDonald’s. Its dividend is better covered today, it has grown faster, and its U.S. business may be turning the corner. It’s just that, over 10 years, I’d rather start with PepsiCo’s bigger check.
Of course, PepsiCo’s better coverage is only a few quarters old. If its cost cuts and its North American fix don’t keep free cash flow up, its raises could slow, and McDonald’s would start closing the gap.
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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!
