Stock Analysis

Franklin Resources (NYSE:BEN) Is Due To Pay A Dividend Of $0.29

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The board of Franklin Resources, Inc. (NYSE:BEN) has announced that it will pay a dividend of $0.29 per share on the 14th of October. This makes the dividend yield 4.5%, which will augment investor returns quite nicely.

View our latest analysis for Franklin Resources

Franklin Resources' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Franklin Resources was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to fall by 3.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 40%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

NYSE:BEN Historic Dividend September 2nd 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the annual payment back then was $0.333, compared to the most recent full-year payment of $1.16. This means that it has been growing its distributions at 13% per annum over that time. Franklin Resources has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Franklin Resources May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Franklin Resources' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Franklin Resources' Dividend

Overall, we think Franklin Resources is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Franklin Resources has 3 warning signs (and 1 which is potentially serious) we think you should know about. Is Franklin Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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