Franklin Resources, Inc. (BEN - Free Report) has announced a special cash dividend of $3 per share, to be paid on Apr 12, to shareholders of record as of Mar 29. Along with this, the company has announced a regular quarterly cash dividend of 23 cents per share, which will be paid on the same date.
Given that the new Tax Act improved the company’s capital position as well as its financial strength, management feels that a special dividend is the best way to return capital to shareholders.
According to 551.7 million of shares outstanding as of Jan 23, 2018, this special dividend represents a total payment of $1.7 billion.
In fact, the company’s chairman and CEO, Greg Johnson, said, “This dividend is consistent with our long-term capital management policies and our commitment to our stockholders. We will continue to prudently invest in our business, actively pursue strategic and accretive acquisitions, buyback our stock when it makes economic sense, and distribute the rewards of those investments to our stockholders over time.”
Notably, the company also paid a special cash dividend of 50 cents per share in January 2015. Moreover, it has hiked its dividend every year since its inception in 1981, the latest being a 15% increase in December 2017. Further, the company has an efficient share repurchase program in place.
Given a solid capital and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.
However, question arises, whether it is worth considering Franklin stock for earning this dividend income.
Let’s delve deeper into its financial performance and fundamentals to understand the risk and reward.
Earnings: Although the company has witnessed nearly 4% decline in its earnings per share (EPS) over the last three-five years, it is expected to deliver a strong earnings performance in the near-term as indicated by its projected EPS growth of nearly 8% and 6.7% for fiscal 2018 and 2019, respectively. Moreover, its long-term (three-five years) projected EPS growth of 9.1% promises reward for shareholders.
Valuation: Franklin stock looks overvalued, based on its price-to-earnings (F1) and price-to-sales ratios. The company currently has a P/E (F1) ratio of 11.94 and a P/S ratio of 3.32, which are above the industry averages of 11.76 and 3.09, respectively.
Leverage: Franklin has a debt/equity ratio of 0.09, which compares favorably with the industry average of 0.11. This indicates that the company has a lower debt burden, relative to the industry and that it will be financially stable, even in adverse economic conditions.
Return on Equity (ROE): The company’s ROE of 13.88% is higher than the industry average of 13.45%. This reflects that it is more efficient in utilizing shareholder funds, compared with its peers.
Expenses: Franklin has been successful in reducing costs for the last few years. Expenses have declined nearly 7%, 14% and 3% in fiscals 2015, 2016 and 2017, respectively. Thus, lower expenses are expected to aid bottom-line growth in the quarters ahead.
Share Price Movement: The company’s price performance does not look impressive. Its shares have lost 5.8% in the past year, as against 19.9% growth for the industry it belongs to.
While a stretched valuation and poor price performance make us a little apprehensive about the stock, we believe that it is a wise idea to add the stock to your portfolio now, given its declining expenses, a lower debt burden, superior ROE and good earnings growth prospects.
Moreover, its Zacks Consensus Estimate for the current fiscal-year earnings has been revised nearly 3.5% upward over the last 30 days, indicating analysts’ optimism regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
A few other stocks in the same space worth considering are Waddell & Reed Financial, Inc. (WDR - Free Report) , Federated Investors, Inc. (FII - Free Report) and Affiliated Managers Group, Inc. (AMG - Free Report) .
Waddell & Reed’s Zacks Consensus Estimate for current-year earnings has increased 11.6% in the last 30 days. The company’s share price has increased 12.3% in the past year. It currently sports a Zacks Rank #1 (Strong Buy).
Federated Investors’ earnings estimates for the current year have been revised 1.5% upward, over the last 30 days. Further, in a year’s time, the company’s shares have jumped 24.9%. It also carries a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Affiliated Managers has a Zacks Rank #2. Its earnings estimates have been revised 2.9% upward for 2018, in the last 30 days. Also, its share price has increased 12.8% over the past year.
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