Think back to a time when you were discussing the performance of an investment with someone.
Whether it was your own investment or the other person’s investment, or even a friend of a friend’s brother, it really doesn’t matter. I am willing to bet that the conversation was centered on the outstanding increase in value (either realized or unrealized).
When discussing investments, most people like to focus on the positive and don’t talk too much about their investments that are losing money.
Therefore, I thought it would be an interesting exercise to take a closer look at one of my losing positions and determine if the stock still meets my dividend growth investing portfolio guidelines.
Today we will take a look at Franklin Resources, Inc. ($BEN)
About Franklin Resources, Inc.
Franklin Resources, Inc. is an asset management holding company that operates as Franklin Templeton Investments and provides investment management and related services to individuals, institutions, pension plans, trusts, and partnerships. The firm invests in the public equity, fixed income, and alternative markets.
The company was founded by Rupert H. Johnson Sr. in 1947 in New York. He named the company after Benjamin Franklin because Franklin epitomized the ideas of frugality and prudence when it came to saving and investing money.
Franklin Resources is headquartered in San Mateo, California.
DGI Portfolio Guidelines
At the close of the market today, my position in $BEN is in the red by 3.79% with a cost basis of $33.74/share and a closing price of $32.46/share. The stock is trading 8.38% off the 52-week low of $29.95/share.
Let’s see how Franklin Resources matches up with my portfolio guidelines:
- P/E Ratio: With a current price of $32.46 and forward earnings of $3.16/share, BEN is trading at a P/E ratio of 10.27–well below my target of the overall S&P 500 market index P/E.
- Increasing Dividend: Franklin Resources easily surpasses my guideline for a minimum of 5-10 years of dividend increases with their 38-year history of rising dividends.
- Dividend Growth: I look for dividend growth greater than 6% over the last one, three, five, and ten year periods and BEN checks all of the boxes here with strong growth (details shared below).
- Payout Ratio: My guideline is to look for a payout ratio below 60-65% and BEN has a very conservative payout ratio of 29.1% which leaves considerable coverage for their dividend in the face of earnings pressure.
- Dividend Yield: Based on the closing price today, their dividend yield is 2.83% and that is above my 2.5% target.
- Beta: The current beta is 1.45 and that lands above my desired guideline of 1.0, which means this stock tends to be more volatile than the market.
To highlight the strong dividend growth that Franklin Resources has delivered, take a look at the results here:
Outlook Moving Forward
Based on my DGI portfolio guidelines, Franklin Resources checks all of the boxes and continues to meet my criteria with the exception being the beta that is higher than the market.
However, simply checking all of the boxes doesn’t necessarily provide the full picture.
Franklin Resources is an asset manager and with more and more people beginning to manage their own investments with low-cost index funds, that has been having an impact on their bottom line.
Their assets under management (AUM) as of August 31, 2018 was reported at $722.4B compared to $747.4B year-over-year and down from $733.7B in the prior month. Month over month, they were down in total equity AUM, multi-asset AUM, and fixed-income AUM while cash management AUM had a slight increase.
Despite the downward trend in AUM, Franklin Resources carries very little debt with total liabilities of $3.3B compared to over $6.4B in cash. This puts them in a very interesting spot where they have the ability to weather a declining business while continuing to grow their earnings per share and/or dividend.
Lastly, as a dividend investor, Franklin Resources is appealing because they occasionally pay a special dividend as they did earlier this year with a $3.00/share payout.
Overall, while I have lost ~4% from my purchase price, I still believe that Franklin Resources will continue to provide an attractive dividend and maintain their impressive dividend growth.
I am prepared for the stock price to be volatile, and will watch for that to provide opportunities to nibble more shares. I am a little hesitant to go too strongly as I believe the next bear market will be a significant blow to their price. However, a 38-year history of dividend increases demonstrates that they have weathered a few bear markets.
Right now I am content to hold but if the price returns to levels near $30.00/share I will be looking to add a little.
What do you think of Franklin Resources and/or my analysis?