Meet the Dow Jones Dividend Stock That Is Hovering Around an All-Time High Despite the Stock Market Sell-Off

The stock market sell-off has intensified, with the Dow Jones Industrial Average and S&P 500 both down over 10% from their recent highs and the Nasdaq Composite down over 20% as of this writing-- putting the growth-heavy index in a bear market.

But that doesn't mean that all stocks are going down. In fact, fast-food giant McDonald's (NYSE: MCD) hit an all-time high in March and is up slightly year-to-date at the time of this writing.

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Here's why the Dow Jones component is well positioned to endure tariffs and why the dividend stock could be worth buying now.

Image source: Getty Images.

A tariff-resistant business model

McDonald's isn't tariff-proof, but it can endure a period of prolonged trade tensions.

McDonald's has over 38,000 locations in more than 100 countries, and around 93% of its locations are operated by independent business owners. These franchisees pay McDonald's rent and royalties. In exchange, they profit from food and beverage sales. It's a win-win for both parties because McDonald's corporate enjoys a relatively hands-off approach to generating stable cash flow while franchisees benefit from McDonald's brand power.

McDonald's has become so efficient with its operations that it currently sports a sky-high operating margin of 45.7%, which resembles a software company like Microsoft more so than a restaurant chain. For comparison, consider that other restaurant brands like Chipotle Mexican Grill and Starbucks have operating margins of just 17.6% and 13.2%, respectively. Chipotle owns its own stores. Starbucks owns and operates the majority of its stores, but it also has licensed locations. However, both companies have a more discretionary-dependent lineup of food and beverages, making them more vulnerable to pullbacks in consumer spending and tariffs.

As you can see in the chart, McDonald's revenue hasn't grown much over the last decade, but because its operating margin has steadily climbed, it is converting a boatload of sales into operating income.

MCD Revenue (TTM) data by YCharts

When analyzing McDonald's, it's important to understand that corporate results vary substantially from total sales at all locations. In 2024, systemwide sales, which include franchised locations, were $130 billion. The margins on systemwide sales aren't nearly as high as what McDonald's corporate is getting because royalties and rents don't require a lot of operating expenses and are therefore high-margin.

McDonald's isn't really in the business of selling burgers and fries. Rather, it wants its franchisees to operate profitable stores so they stay in business and continue paying rent and royalties, and more business owners buy into the McDonald's model.

All told, McDonald's franchise model and focus on delivering value to customers make it relatively insulated from fluctuations in the business cycle.

Key competitive advantages

McDonald's has made several improvements in recent years that have contributed to its solid results. The big one is its loyalty investments. In 2024, systemwide sales to loyalty members were 30% higher than in 2023 -- comprising 23% of 2024 systemwide sales. McDonald's doubled down on its "Four D's" strategy -- digital, delivery, drive-thru, and restaurant development -- to make it easier and faster for customers to order what they want at the best value.

These improvements could help McDonald's do well during a recession or period of prolonged tariffs. In the past, McDonald's successfully justified price increases and passed higher costs on to customers. Providing better service and convenience could separate McDonald's from the competition and drive traffic even during a slowdown. Some customers may shift food spending from sit-down restaurants to cheaper options and groceries, which would benefit McDonald's.

Referring back to the 10-year change in McDonald's sales and margins, you can see that the company's performance hasn't really dipped even during past market sell-offs and economic slowdowns, like the 2018 trade tensions under Trump's first term, the COVID-19 pandemic and the inflationary period over the last few years.

McDonald's franchise model, operational improvements, investments in its rewards program, mobile ordering, pickup, and delivery, and market positioning should help the company endure economic uncertainty. These factors may explain why the stock has held up well relative to the broader indexes so far this year.

MCD data by YCharts

A reliable source of passive income

Because of its capital-light business model and high margins, McDonald's can afford to return a boatload of profits to shareholders through dividends and buybacks. McDonald's has a payout ratio of 59.2%, meaning its dividend isn't soaking up too much of its profits. It has raised its dividend for 48 consecutive years, making it an ultra-reliable source of passive income.

Over the last decade, McDonald's has reduced its share count by nearly a quarter and more than doubled its dividend, showcasing how it returns capital to shareholders through both buybacks and dividend growth. McDonald's yields 2.4% at the time of this writing.

A foundational dividend stock to buy now

McDonald's isn't the fastest-growing business, but it is an excellent safe stock for investors looking for a steady performer that can do well even during economic slowdowns and recessions. The franchise-heavy business model leads to steady cash flows, which support predictable dividend raises and buybacks.

Add it all up, and McDonald's may be worth a closer look for risk-averse investors or anyone looking for a reliable dividend stock they can count on no matter what the broader stock market is doing.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Microsoft, and Starbucks. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.