Higher Fees Mean Higher Profits for the Right Companies

No matter how you slice it, companies need to make a profit. That means they need to make money even after all the costs of business. So when those costs rise, so do the prices consumers pay. It can also mean changing returns for investors.

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  • For instance, investors in a franchise need to have deep pockets to invest. Most franchise companies require an up-front financial commitment. Increasing those fees is a sign of higher profitability for the management company.

    After 30 years without an increase, restaurant giant McDonald’s (MCD) is raising fees for its franchisees.

    That means the operators of local restaurants will have to pay the parent company more. In turn, McDonald’s can likely continue to pay out increasing dividends to shareholders.

    Shares of the burger chain are off about 10 percent from their all-time high. And they’re up just 10 percent over the past year, lagging the overall market. However, during recessions, McDonald’s tends to be a strong performer.

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  • Action to take: The company is an industry leader, and shareholders are well-rewarded over time thanks to hard working franchisees. McDonald’s is also a dividend growth stock, with shares yielding about 2.2 percent at today’s prices.

    Investors may like shares at current prices or on any drop lower.

    For traders, shares look ready to trend higher after drifting lower for a few months. The January 2024 $295 calls, last going for about $2.60, could see mid-to-high double-digit gains.


    Disclosure: The author of this article has a position in the company mentioned here, but does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.


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