For risk-averse investors such as retirees, it may make sense to buy high-quality dividend stocks in this climate of uncertainty, notes Ben Reynolds, editor of Sure Dividend.
Rising inflation, and the potential for a recession could lead to continued volatility in the stock market.For this reason, we recommend income investors looking for stability, consider the Dividend Aristocrats.
This is an exclusive list of 65 stocks in the S&P 500 Index, that have raised their dividends for at least 25 consecutive years. Such a long track record of annual dividend increases proves a company’s ability to withstand recessions.
Franklin Resources (BEN) is a time-tested Dividend Aristocrat that has increased its dividend for over 40 consecutive years. The stock has declined ~15% year-to-date, which we view as a buying opportunity. With a current yield of 4.1%, Franklin Resources is an appealing pick for retirees.
Business Overview & Recent Events
Franklin Resources is a Dividend Aristocrat from the financial sector. Franklin Resources is a global asset manager offering investment management and related services including sales, distribution, and shareholder servicing. The company offers investment management and related services to its customers, including sales, distribution, and shareholder servicing.
On July 28th, Franklin Resources reported third-quarter financial results. Revenue of $2.03 billion declined 6.5% year-over-year, while adjusted earnings-per-share of $0.82 declined 15% for the quarter. Average assets under management declined 6% year-over-year, due to declines in the capital markets.
While 2022 is proving to be a challenging year, we expect the company to bounce back and return to growth. Our forecast is for 3% average EPS growth per year over the next five years. The biggest growth segment in the asset management industry is ETFs, which have much lower expense ratios than actively managed funds.
Franklin’s actively managed funds have performed well, which serves as an advantage versus other active asset managers. Continued growth will allow Franklin Resources to keep increasing its dividend each year.
Dividend Safety & Expected Returns
Franklin Resources has a secure dividend, with a 2022 expected dividend payout ratio of just 31%. The dividend payout ratio has never been especially high, which has allowed the company to retire a meaningful number of shares and pay the occasional special dividend.
In the most recent quarter, Franklin Resources repurchased 2.0 million shares of its common stock for a total cost of $51.0 million. It has also raised its dividend for 42 consecutive years, including a 4% hike in December 2021. Shares currently yield 4.1%.
The company is expected to generate earnings-per-share of $3.72 for 2022. This means the stock is valued at a P/E of just 7.7. Our fair value estimate is a P/E of 9. This means expansion of the P/E multiple from 7.7 to 9 could increase annual returns by 3.2% per year over the next five years.
The stock is currently undervalued, and also has a high dividend yield of 4.1%. Meanwhile, we expect EPS growth of 3% per year, leading to total expected returns just above 10% per year over the next five years.
