Sorry BEN, There Are Better Opportunities Elsewhere

BEN - Franklin Resources
Franklin Resources, Inc. is a global investment management organization. It provides investment management, fund administration, sales and distribution, shareholder servicing and other services. The company manages more than $717 billion in assets (AUM) at September 30, 2018, and offers products and services under Franklin, Templeton, Franklin Mutual Series, Franklin Bissett, Fiduciary Trust, Darby brands.

Franklin’s assets can be broadly classified into equity (43% of total AUM as of September 2018), fixed income (36%), multi-asset (20%), and cash management (1%). The U.S. remains Franklin’s largest market with 67% of AUM, followed by EMEA (14%), Asia Pacific (13%), Canada (4%) and Latin America (2%).
Franklin operates through an integrated network of risk management professionals, global trading desk network and strong distribution franchise across the globe.

The company has an unrivalled global reach with offices in 34 countries and clients in more than 170 countries. Franklin’s clientele includes retail (72% of AUM), institutional (25%) and high net-worth (3%) clients. The company is also focusing on new investors moving in the middle class segment in emerging markets around the world.

Investment Data

Revenue Growth & Market Exposure

Franklin Resources derives a majority of its revenue from investment management and distribution fees. The company is globally known for its broad suite of mutual fund and ETF offerings. Its globally diversified business and strong footing in the world’s financial markets make it a preferred partner of choice for millions of its customers. The company now has over 50 ETFs globally, involving active, smart beta and passive strategies.

With more than seven decades of investment experience, Franklin has developed expertise across all major asset classes such as equity, fixed income, and alternative investments. It has become a trusted partner in asset management through lasting relationships and superior customer service. Franklin’s long history in the investment management business has helped it to deliver solid investment performance over the years. The company is highly diversified across client type, geographical region, and investment objective. It is also expanding geographically and enhancing its research and distribution capabilities. Franklin Resources is widening its platform of strategic beta and actively managed ETFs, as well as additional passive ETF products which offer more investment options for its investors.

The company has a sound history of growing through acquisitions. The latest acquisitions include that of San Francisco based Random Forest Capital, and Edinburgh Partners which have expanded Franklin’s fundamental fixed income business as well as strengthened its global equity product offerings respectively. Franklin Templeton’s alternative offerings are expected to represent more than $40 billion in AUM, after the acquisition of Benefit Street Partners, in the second fiscal quarter of 2019.

Dividends

Franklin Resources is a dividend aristocrat with an exceptional dividend growth track record. The company has raised dividends for the past 37 years, increasing them at more than 18% CAGR over the last five years. Its payout ratio is also reasonable at 35%, indicating sufficient room for further growth.

The investment management firm last increased its dividends by 13%. In 2018, the Board declared a $3 per share special dividend and indicated its plan to allocate capital to share repurchases. The company returned over $3.5 billion to shareholders through dividends and stock repurchases, which represented an increase of 191% on an annual basis. Its current dividend yield stands at 2.95%. A cash flow rich business and low payout ratio have been supporting safe and growing dividends over the years.

Franklin’s equity and fixed income asset mix coupled with its large global presence should drive long term growth. The company is well positioned to benefit from a growing aging population in the U.S. with an increasing demand for investment needs. A capital light highly scalable business model, solid reputation and a low payout ratio, should support future dividend increases at the same level.

Competition

The financial services industry is highly competitive. Franklin faces strong competition from investment management companies, securities brokerage and investment banking firms, insurance companies, banks, and other financial institutions. Given its continued investment in innovation and technology and a client-centric culture, the company is favorably placed to gain from an evolving investment management industry.

Bottom Line

As the world’s top cross-border fund management group, Franklin is in a position to serve the diverse needs of individuals as well as institutional clients around the world. Franklin’s integrity, high-quality customer service, long-term investment performance, and disciplined approach are its strong competitive advantages.

Given its strong balance sheet and solid reputation, the company should continue its dividend growth streak over the coming years. However growth is not clear and the stock has been in the dog house. There are better opportunities.

BEN vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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