Is McDonald's (MCD) Still a Viable Long-Term Buy in a High-Inflation, Low-Traffic Environment?

In an era marked by persistent inflation and shifting consumer behavior, McDonald's (MCD) remains a focal point for investors seeking defensive equities. The fast-food giant's Q3 2025 results revealed a mixed picture: while adjusted earnings per share of $3.22 fell short of forecasts and revenue missed expectations, the stock rose 2.99% in pre-market trading, underscoring investor confidence in its strategic resilience. According to financial analysis, global comparable sales grew 3.6%, driven by U.S. and international markets, yet U.S. traffic declined by 3.5% year-over-year, reflecting broader industry challenges. This analysis evaluates whether MCD's real estate-like returns, dividend history, and valuation metrics justify its status as a long-term buy, despite slowing growth and inflationary pressures.

Defensive Resilience: Real Estate and Operating Margins

McDonald's has long leveraged its real estate portfolio as a competitive moat. Approximately 40% of its revenue now derives from property income, including rental fees and franchise royalties, with 80% of its 43,000 global locations owned outright. This triple-net lease structure-where franchisees cover operating costs-ensures that rental income flows directly to the bottom line. In Q3 2025, operating margins held steady at 47.4%, a testament to the durability of this model. Analysts estimate that McDonald's real estate earnings account for 60% of operating income, a figure that has grown from 40% a decade ago. This asset base, valued conservatively at $120 billion, positions the company as a de facto global REIT, offering stable cash flows even amid economic headwinds.

Dividend Strength and Payout Sustainability

McDonald's has consistently increased dividends since 1976, with the 2025 quarterly payout rising to $1.77 per share. At a 2.2% yield, the stock offers income investors a compelling proposition, particularly as the payout ratio sits at 55–60% of free cash flow, well within sustainable limits. Historical data shows dividends rising from $0.85 in 2015 to $1.77 in 2025, reflecting disciplined capital allocation. Analysts project a 5.1% increase to $1.86 per share in 2026, further reinforcing its appeal as a "dividend aristocrat."

Valuation Metrics: Overpriced or Fairly Valued?

McDonald's trailing P/E ratio of 26.49 as of December 2025 appears reasonable relative to the 48.89 industry average for Hotels, Restaurants & Leisure. However, its Price-to-Free-Cash-Flow (P/FCF) ratio of 30.30 exceeds the Restaurants industry median of 14.02, suggesting potential overvaluation. Analysts have set a consensus price target of $324.57, implying a 6.42% upside from the current price of $304.99. While this "Hold" rating reflects cautious optimism, the company's P/E ratio has remained near its 10-year average of 25.87, indicating that the market has priced in steady, but not explosive, growth.

Balancing Growth Challenges and Strategic Initiatives

The U.S. market faces unique pressures: lower-income traffic has declined by double digits, while higher-income diners have flocked to value-focused offerings like the relaunched Extra Value Meals (EVMs). Beverage tests in 500 U.S. locations have driven incremental visits, and the company's focus on digital infrastructure and delivery ecosystem enhancements aims to offset traffic declines. However, these initiatives must contend with inflationary costs, particularly labor and supply chain expenses, which have eroded margins across the hospitality sector.

Conclusion: A Viable Long-Term Buy?

McDonald's defensive characteristics-its real estate-like returns, robust dividend history, and resilient operating margins-offset near-term challenges in consumer traffic and inflation. While valuation metrics like P/FCF suggest the stock may be overpriced relative to peers, its lower P/E ratio compared to industry averages and strong cash flow generation justify a long-term holding. Investors should monitor the company's progress in China, where 1,000 new restaurants are planned, and its ability to maintain traffic growth among higher-income consumers. For those prioritizing income and stability, MCD remains a compelling option, though growth-oriented investors may need to temper expectations.