Readers hoping to buy Franklin Resources, Inc. (NYSE:BEN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Franklin Resources’ shares on or after the 30th of December, you won’t be eligible to receive the dividend, when it is paid on the 10th of January.
The company’s next dividend payment will be US$0.32 per share, on the back of last year when the company paid a total of US$1.24 to shareholders. Looking at the last 12 months of distributions, Franklin Resources has a trailing yield of approximately 6.1% on its current stock price of US$20.96. If you buy this business for its dividend, you should have an idea of whether Franklin Resources’s dividend is reliable and sustainable. So we need to investigate whether Franklin Resources can afford its dividend, and if the dividend could grow.
View 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 146% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we’re discomforted by Franklin Resources’s 19% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Franklin Resources has increased its dividend at approximately 10% a year on average. That’s intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Franklin Resources is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.
