This dividend yield is 4.6%, which is very solid

The Standard & Poor’s 500 The index was on the decline, adding to the uncertainty for long-term investors. However, weak markets can be a good time to start looking for dividend stocks, since the payout moves in the opposite direction to the price. A particularly interesting name today, given its association with broader markets, is Franklin Resources (The son of -1.67%)Which offers a 4.6% fat yield.

The Big Picture

Franklin Resources is an asset manager, with approximately $1.5 trillion in assets under management (AUM). It makes a profit by charging that amount, generating around $1.65 billion in revenue from asset management fees in the first quarter of 2022 alone. Sales, distribution, and service fees rounded off the upper end to approximately $2.1 billion. The company earned $0.68 per share in the quarter and paid a dividend of $0.29 per share, resulting in a payout ratio of approximately 43%.

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Notably, the company’s earnings fell about 8% year over year in the first quarter, which has led to one of the big problems for investors today and why Franklin Resources is down 25% or so this year. The company makes money charging fees for the assets it manages, and the market goes down.

There is a double whammy here, as the value of assets in the company’s investment business declines and when investors withdraw money from the company. Total assets under management were down 1% year over year at the end of the quarter. Simply put, with the S&P 500 down, investors are feeling extra worried about a company like Franklin Resources.

However, despite this connection to the market, Franklin Resources has increased its annual dividend for more than four decades. Think about that for a second. Note that the streak started before the turn of the century, which means profits have grown through the dot.com crash, the housing crisis, and the coronavirus pandemic. This is a company that has proven to be resilient.

Are things different this time?

However, the big fear today is that the asset management business is moving towards indexed products like exchange-traded funds (ETFs). This has reduced the demand for active management, a specialty of Franklin Resources. It’s a big issue to consider, but Franklin Resources isn’t standing idly by – it’s solidifying its position in the industry by becoming a consolidated company.

For example, in 2020, the company completed the acquisition of Legg Mason, another premium name in the asset management space. Since then, smaller names have added O’Shaughnessy Asset Management, Lexington Partners and Diamond Hill Capital Management.

This helps the company continue to expand its business even in the face of industry headwinds, and helps Franklin Resources maintain its business diversification. Today, the company’s assets under management are distributed over fixed income (40%), equities (35%), alternative assets (11%), and multi-asset portfolios (10%). Cash rounds the total to 100%. Individual investors accounted for 52% of the company’s managed cash, institutional funds accounted for 46%, and high net worth accounts accounted for 2% of the total.

And while 75% of Franklin Resources’ business is from the United States, 25% are from foreign investors. Basically, there is a fair amount of diversification in the business mix here.

While Franklin Resources is not known as an ETF store, they are working on expanding into this type of product. For example, despite its total AUM inflow in the first quarter, its ETF business, which includes index product and actively managed fare, increased by $13 billion. Essentially, Franklin Resources is looking to adapt to the world around it in order to remain a long-term winner in the asset management space. Given her written history, there is no reason to doubt her ability to achieve this goal.

Buy when others are afraid

It’s certainly not an easy time to buy Franklin Resources, despite its generous and well-covered earnings. However, the company has survived periods of market uncertainty before and should do so again. Perhaps the market will sell more, and buying this asset manager today means sitting with some paper losses while waiting for investor sentiment to improve.

Since no one has a crystal ball, you can’t rule it out, but collecting a 4.6% fat yield backed by a company that achieved Dividend Aristocrat status should make picking up early easier. And don’t forget that while every bull market is followed by a bear, every bear is also followed by a bull.

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