My Final 2014 Purchases:
I 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:
The 3-5 year trend line growth graph:
Historical Compound Annual Growth Rate Graph:
How was your December? What are you buying?