Is McDonald's an Undervalued Dividend Stock to Buy Right Now?

McDonald's performance in 2026 has been disappointing. The stock is down over 18% and of course I'm disappointed with that because I ranked McDonald's as one of the top 10 stocks you could buy this year. It looks like my ranking of McDonald's as a top 10 for 2026 was early and the company's had executional difficulties combined with macroeconomic headwinds. The management team recently pushed back their estimates for when they'll achieve a 50,000 store target from 2027 to 2028. So where does that leave me in terms of my ranking of McDonald's? Do I still think it's one of the best to buy right now or am I downgrading this business? Let's take a look together. I want to thank The Motley Fool for sponsoring this video. Visit fool.com/par Kev for the 10 best stocks to buy now. So despite these macroeconomic headwinds, McDonald's business is still growing. 27.7 billion in trailing 12-month revenue and recent innovations have been mixed. The company's under $3 menu innovation is not working as well as management expected. However, the new beverage initiation has worked better with cold coffee doing better and crafted soda doing better than management's expectations. Still, the overall industry headwind is impacting McDonald's negatively. People have less disposable income and are choosing to eat out less often. Simultaneously, the cost of inputs for McDonald's are increasing across the board, whether you're talking about labor, minimum wage laws are causing and forcing McDonald's to pay higher wages, or if you're talking about tariffs which have caused the input prices for components in building new locations to increase and food prices to increase as well. On top of that, the war in Iran and higher oil prices are causing further pressure, not just on the cost of operations for McDonald's, but also further worsening the consumer situation by leaving less money in people's bank accounts to purchase and go out and have a meal. So, all of that is weighing on performance at McDonald's and considering all of those headwinds, the performance of McDonald's is relatively decent. Now, one of the reasons I initially ranked McDonald's as one of the best stocks you can buy is they've been reinvigorating revenue growth and the business itself is very lucrative, operating with an operating profit margin over 45% and that's remained at these levels despite all of those headwinds to costs and inputs I highlighted earlier. Another reason I've been bullish on McDonald's is because of the incorporation of improved technology. You've got kiosks in stores where people can order their meals instead of ordering from a cashier. That greases decreases the labor dependence of each location and as I mentioned, labor costs have been increasing, so that's been a huge improvement for franchisees. On top of that, you've got the development of artificial intelligence at drive-thru windows that further decreases the labor intensity of each location. And then to top it all off, you've got food delivery networks expanding worldwide. Additionally, you've got robots making food deliveries that expands the reach of each McDonald's location. So, all of these factors contributed to my bullishness of McDonald's stock, but it seems like those developments were delayed because of the macroeconomic headwinds and the benefits of those investments in technology have been overshadowed by all of the headwinds I highlighted earlier. But that being said, McDonald's stock is cheaper than ever. It's trading at a forward price to earnings of 17.8. You haven't been able to buy McDonald's stock at this valuation going back a really long time. The valuation has absolutely collapsed here in 2026. At points this year it was trading at a forward price to earnings of 24 and that's fallen to 17.8. Investors are noticing all of those headwinds I mentioned earlier and are not interested in getting in front of that to purchase McDonald's stock. So given the latest update from McDonald's management team, I revised my estimates for McDonald's lower. I now forecast less cash flow from McDonald's over the next 3 years, 26, 27, and 28 and I pushed out the benefits from their innovations starting in 2029. All of that had the impact of decreasing slightly my intrinsic value per share to $295. The current market price is $250. So I see 18% upside here for McDonald's stock over the next 12 to 18 months plus dividends. So I think I was early with ranking McDonald's as one of the best stocks to buy in 2026. But I'm still bullish on the business and those tailwinds I mentioned are still in place if not more so. Near-term headwinds will likely persist and 2026 is likely to continue to be a difficult year for McDonald's. I'm ranking McDonald's as one of the best stocks you can buy right now even though I think the catalyst for improvements in share price might not happen this year. Even though it might not happen this year, I think investors are faced with a great opportunity in McDonald's stock when measuring it on a risk versus reward basis given the relatively low risk of investing in McDonald's stock.