Don't Buy Franklin Resources, Inc. (NYSE:BEN) For Its Next Dividend Without Doing These Checks

Franklin Resources, Inc. (NYSE:BEN) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 30th of December will not receive the dividend, which will be paid on the 15th of January.

Franklin Resources's next dividend payment will be US$0.28 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 has a trailing yield of 4.5% on the current stock price of $24.8. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Franklin Resources can afford its dividend, and if the dividend could grow.

See our latest analysis for Franklin Resources

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Franklin Resources paid out 68% of its earnings to investors last year, a normal payout level for most businesses.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Franklin Resources's earnings per share have dropped 14% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Franklin Resources has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Has Franklin Resources got what it takes to maintain its dividend payments? 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. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's 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 3 warning signs for Franklin Resources you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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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