My Final 2014 Purchases:

Franklin_Resources_LogoI hope everyone has had a wonderful December. One of the best things about working in the television industry is that things shut down for a few weeks this time of year, and I’ve taken advantage of this break to return to my family in the Midwest for the holidays. The only hard part of the trip has been the weather, as I’d been spoiled by the the constant 70 degree days in Los Angeles and am now shocked by the below zero temperatures here in South Dakota.

In December, I didn’t have as active a month in investments or the community as usual, but I still managed to put a decent chunk of capital to work. Oil prices kept playing with my head as they dragged down most of that sector early in the month. While I try to never time my investments, I kept expecting the sector’s prices to drop by a similar percentage as oil, and it didn’t quite happen yet so I invested elsewhere.

On the 18th, I added $250 in Unilever (UL) to my commission free Loyal3 account at $41.00 a share. With no major catalysts lately, I’m hoping I can continue to build this position at this price or lower.

Yesterday, on the 29th, I initiated a new position in my portfolio which marks the 21st company I’m invested in. I purchased 38 shares of asset management company Franklin Resources (BEN) at $56.52 a share and a $6.95 commision for a total transaction cost of $2154.71.  I barely missed the ex-dividend date, but I believe I’ll still qualify for the special dividend the company occasionally provides which will be .50 cents a share. My starting yield is smaller than most dividend growth investors would be interested in, at only 1.06%. However, I have a long time horizon, and this company has been aggressively raising dividends for over 30 years, and the most recent raise was 25%! This large raise is not uncommon for this dividend champion as the 5 year dividend growth rate is an astonishing 49.14%. It also sports a super low payout ratio under 13% which will allow that dividend growth to keep accelerating. I bought BEN at a P/E of just less than 15 and a forward P/E of just over 13. Both of these purchases add $31.55 to my forward annual income (not counting the first missed dividend or the earned special dividend from BEN).

Most dividend growth investors that would read my blog have difficulty investing in asset management companies like BEN because we’re all do it yourself types; however, as more of the world enters the middle class, I expect these types of companies to do very well. The day of my purchase, I got some validation from Jason over at Dividend Mantra when he posted an excellent list of companies he’s still wanting to add to his portfolio. Be sure to check it out: “Themes For My Portfolio For 2015 And Beyond”. He specifically mentioned BEN:

They run the venerable Franklin Templeton Investments firm, which is another household name. The yield isn’t quite where I’d like it to be, but this is another company that does really well over lengthy periods of time. More people means more assets to manage, and there continues to be a groundswell of education that points to the fact that people need to invest more. There’s a ton of untapped potential here for BEN and other companies like it. Another great dividend growth stock, with 34 consecutive years of dividend increases. ~Jason from Dividend Mantra

Another article I enjoyed that spoke of this company was penned by Tim McAleenan Jr. at The Conservative Income Investor. Make sure you read “Financial Stocks In A Conservative Dividend Portfolio.” Here’s some of what he had to say about BEN:

Franklin Resources has been growing its profits 17% annually over the past decade. It made almost a billion dollars in profit in 2009, a time during which many financial firms were collapsing, requiring bailouts, and/or diluting shareholders. The dividend has been growing at a rate of 14.5% annually over the past ten years, and the dividend currently only amounts to 10% of the company’s overall profits. Franklin Resources is one of those life-changing companies for people that know about it; since 1984, it has compounded at a rate of 28% annually. That’s better than Altria. Heck, that’s better than Buffett at Berkshire. Do you realize what that kind of sustained compounding engine does to one’s financial picture? It turns $10,000 in 1984 capital into a little over $18,000,000 today.
It’s what Charlie Munger alluded to when he talked about companies that permit you to sit on your rear and collect the dividends as they come, knowing you’ve entrusted your hard-earned money to a place that will continue to work super hard on your behalf. It’s one of those companies where you secretly open up an obscure IRA, buy a few thousand dollars worth of Franklin Resources stock, click automatically reinvest the dividends, and completely forget about it for twenty years, allowing it to escape to the back recesses of your mind until one day you check the account and go, “Holy crap! I’m loaded!” It’s got a 19.3% return on total capital; it’s one of those investments you make and then leave well alone—meddling with it by selling will only cause you to later reach for the Tums when you pull out the calculator and measure what could have been. ~ Tim McAleenan Jr. at The Conservative Income Investor

Finally, check out this Seeking Alpha article that Dividend Growth Investor published called, “Franklin Resources: An Overlooked Dividend Growth Stock To Consider.” He wrote:

Overall I am bullish on asset managers, who have the odds stacked in their favor for future success. Essentially, the goal of the game is to get as much in assets under management, and then try to have low costs relative to competitors. As a large portion of customers stay with a manager, this generates fees for years to come.
Since asset prices tend to rise over time, asset managers who earn a fixed fee based on amount of money they manage are destined to earn more as well. This would not be a smooth ride up, but nevertheless the rising tide is destined to lift all boats up. Even if stock markets end going up by 6 – 7% in price annually for the next 2 – 3 decades, those asset managers are going to earn 6-7% more per year merely because they manage those assets. As long as the amount redeemed equal amount of new money invested, the asset manager will earn more money for shareholders simply for being there.
It is a pretty sweet model after all, where if you come up with a mutual fund idea and raise hundreds of millions from investors, you get to earn an annuity like income stream, as long as asset levels are at least maintained. There is no risk for the manager, and the risk is borne by investors in the funds.
Of course, if those asset managers also find ways to market their products and receive more in inflows from investors, their earnings per share could grow much faster than overall profits from other US sectors. ~Dividend Growth Investor on Seeking Alpha.

Here are a few fast graphs of this company:

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Normal P/E estimate graph:2014_DECEMBER_FG_BEN4

 

The 3-5 year trend line growth graph:

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Historical Compound Annual Growth Rate Graph:

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1 Year Analyst Scorecard:2014_DECEMBER_FG_BEN8

Analyst Scorecard Summary:
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How was your December? What are you buying?

My Dividend Growth

http://www.mydividendgrowth.com

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10 thoughts on “My Final 2014 Purchases:
  1. Dividend Mantra

    Ryan,

    Thanks for the mention!

    I think you made a great choice. BEN kind of fits in that area of stocks like Disney or Visa where you’re not getting a ton of income right now, but I think the aggregate dividend income over a 10 or 20 year period should be pretty high. Nonetheless, it’s a very high-quality company.

    Sounds like you had a great holiday with family. That’s what it’s all about. 🙂

    Happy New Year!!

    Best regards.

     
    Reply
    1. My Dividend Growth

      Jason!

      Great to hear from you! This break from LA was much needed for the fiancé and myself despite these frigid temps. I hope you’ve had a blast staying in Florida for the season. Don’t feel too guilty since you spend most of the summer back in Michigan. It’s probably too late to comment, but give Claudia my utmost props and respect on the interview you did with her. Her altruism in teaching is so inspiring and she sounds so perfect for you since you do the same thing for the finance community. I’m so happy for you two!

      The timing of your watchlist post couldn’t have been better for my confidence in this pick. It always feels awesome to be on the same page as you since I’m always learning so much reading your articles. I love these stage one company’s and am giddy when looking toward the future with BEN. The potential capital growth is very appealing as well. I’m also glad we’ve both been able add more UL here and hope that opportunity remains or gets even more irresistible.

      I’ve really enjoyed all the content you’ve been providing this month. I continue to be impressed by the quality which keeps getting better despite the heavy increase in posts, we are all lucky to be able to read your writing! Here’s to an excellent 2015!

      All My Best,
      Ryan

       
      Reply
    1. My Dividend Growth

      DGJ,

      Thanks for stopping by, hope you had fun this holiday season! You’ve had a tremendous year and I’m looking forward to your purchases in 2015. I think Jason and Tim hit the nail on the head with their suggestions in this sector. I’d love the opportunity to add to V and BEN at some point, but also want to eventually add MA, TROW, EV, and even BLK looks good. Jason also recommended SBSI early in 2014 and if it ever falls back to earth I’d jump on the chance to pick up a community bank like that. Looking forward to your continued updates and I’ll be in touch in the new year!

       
      Reply
  2. Dividend Diplomats

    MDG,

    Nice job with the purchase of BEN! We actually covered this as well in our expected dividend increases for December and the recap, so nice work, awesome stuff! Great DGR which will carry this investment forward like no other. Congrats on the purchase and good job closing 2014 with some action, now let’s get our gears ready for 2015!

    -Lanny

     
    Reply
    1. My Dividend Growth

      Lanny,

      I appreciate the well wishes. I love the expected dividend increases series you’ve put together. What a great way to learn about a bunch of new businesses. Happy new year and I’m excited to get 2015 rolling, keep it up over there!

      Best Wishes,
      Ryan

       
      Reply
  3. No More Waffles

    Ryan,

    Glad to see you’re back! I hope you had a great time with your family.

    I may start to sound like a broken record, but excellent purchases again! Just like you I’ve added to my Unilever position. I just can’t get enough of that company. Such great products, such a big reach, huge long-term potential, and a rather high yield to start off with.

    After seeing Jason from DM mention BEN I was quite surprised to find an asset managing company that has been doing so well over such a long period of time, very impressive. The low yield would currently defer me from investing in it, however (low yield plus lots of taxes make a horrible investment).

    Have a great 2015, buddy!

    All the best,
    NMW

     
    Reply
    1. My Dividend Growth

      NMW,

      It was cool to have snow again for Christmas and be around the family, and thank you for the well wishes. Hope you had a nice end of the month as well! Unilever fell again and I’m trying to pick up another small lot myself when my deposit goes through. That’s interesting taxes work that way there, because here a lower yield means less total dividends that are being taxed and thus fewer taxes paid. If my tax rate is 28%, that means I pay $11.90 a year for my $42.50 in annual Unilever dividends. But at the same 28% tax rate I pay about half that, only $6.38 in BEN’s annual dividends of $22.80 even though my BEN holding worth almost double what the UL holding is. Taxes can get very complicated in the long run.

      Wishing you the best in the start of this year!
      ~Ryan

       
      Reply
      1. No More Waffles

        Ryan,

        Glad to hear that!

        You are totally right about the taxes, but I meant it in relative terms, not absolute. Sorry to have confused you. What I actually meant was that I have to pay 15% US withholding tax + 25% Belgian income tax on BEN dividends, which cuts the low yield down even further. That’s why it would make a rather bad investment.

        Cheers,
        NMW

         
        Reply

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