Don't Buy Franklin Resources, Inc. (NYSE:BEN) For Its Next Dividend Without Doing These Checks
It looks like Franklin Resources, Inc. (NYSE:BEN) is about to go ex-dividend in the next four days. Investors can purchase shares before the 29th of September in order to be eligible for this dividend, which will be paid on the 15th of October.
Franklin Resources's next dividend payment will be US$0.27 per share, and in the last 12 months, the company paid a total of US$1.08 per share. Based on the last year's worth of payments, Franklin Resources stock has a trailing yield of around 5.5% on the current share price of $19.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Franklin Resources
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Franklin Resources paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Franklin Resources's earnings per share have dropped 12% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Franklin Resources has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
From a dividend perspective, should investors buy or avoid Franklin Resources? We're not overly enthused to see Franklin Resources's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
With that being said, if you're still considering Franklin Resources as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for Franklin Resources you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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