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On Thursday, Franklin Resources, Inc. (BEN - Analyst Report) announced a 3-for-1 stock split plan which will be paid as stock dividend on Jul 25, 2013 to common stockholders of record as of Jul 12, 2013. Moreover, a quarterly cash dividend of 29 cents per common share will be paid on Jul 8, 2013 to stockholders of record holding shares of common stock as of Jun 24, 2013. The quarterly dividend reflects a 7% rise over the prior-year quarterly dividend.

Due to the split, the shareholders will get 3 shares for holding 1 and therefore, the number of outstanding shares of Franklin’s common stock will be increased to 634.8 million from approximately 211.6 million as of Mar 31, 2013. However, the share price of the stock would be reduced to one-third of its pre-split value.

We believe Franklin undertook the stock split plan as its share price is too high compared with other investment managers - Legg Mason Inc. (LM - Analyst Report), Invesco Ltd. (IVZ - Analyst Report) and Federated Investors, Inc. (FII - Analyst Report) in the same sector. This high price is making its shares less attractive to investors.

Through stock split companies make shares look more reasonably priced to small investors, though the underlying value of the company remains constant. A reasonable price attracts investments in such stocks, which boosts share price in the market. Further, such moves by the companies increase marketability and liquidity of stocks in the market.

The move undertaken by Franklin marks the strength in its business model, reflecting the company’s commitment to return value to shareholders coupled with its strong cash generation capabilities. We believe that through the stock split, investors’ sentiments will be positive in the near term. Currently, Franklin carries a Zacks Rank #3 (Hold).

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