This month we received a dividend from Franklin Resources (BEN) in the amount of $23.94 (.18 X 133.011766) which we used to buy .691238 more shares of BEN. One thing to note about BEN is that the stock has not performed well having lost over -20% in the past 5 years. Given that we will be purchasing shares of BEN over the next 2 years, we’d like to see that share price sink as low as possible provided that the company has no issues with increasing their dividend and giving us one of the 30 raises a year we expect from our Quantigence portfolio.
At the moment BEN has a dividend yield that is nearing a 10-year high at 2.05%. While that is not a very high yield, their history of increasing their dividend over time is an excellent one:
If BEN can grow their dividend at the 10-year growth rate of 14.3%, we will be at a yield of 4% in just 5 years’ time!
So can BEN continue to increase their dividend at such a fast pace going forward? When looking at the ability for BEN to increase our dividend, the payout ratio tells us how much buffer the company has:
Having a payout ratio of just 20% means that there is a huge buffer to continue giving us pay income increases while BEN figures out how to resolve their declining revenues issue. A company like BEN earns their money on fees paid for assets under management (AUM). If investors give BEN a lot of money to manage, they make a lot of fees. If investors pull money out, fees fall, which is what is happening to BEN at the moment.
BEN seems to think that their share price is a bargain because they buying back a great deal of shares with all that extra free cash flow that isn’t being paid out in dividends. It looks like they always give their dividend raise in the last quarter of the year so we’re looking forward to that in December of this year. In the meantime, we’re buying $385 a month in BEN shares to reach our target position size of $13,333 in 2 years’ time.