BEN Franklin Resources
Great brand, mediocre economics: BEN deserves roughly book plus a little; the 6% yield is the floor, not the thesis.
The story
Franklin Resources is a century-old active asset manager with massive distribution scale, a fortress balance sheet, and a 6%+ dividend, but GAAP returns have collapsed to ~6% ROE under acquisition amortization (Putnam, Lexington, Perpetual) and secular fee compression. Operating margins have compressed from 22% to 10% in four years, and the pivot to alternatives and ETFs is strategic but margin-dilutive near term. This is a franchise earning roughly its cost of equity, not an excess-return compounder.
Trailing 6.1% GAAP ROE understates normalized economics (adjusted ROE runs ~12%) but the 22%-to-10% margin slide shows real fee pressure, so I normalize to ~11.5% versus a ~9.9% cost of equity (4.97% risk-free + 1.1 beta x 4.5% ERP) — a thin, possibly zero excess return. Book growth of 3-4% reflects low organic AUM growth (2% revenue CAGR) funded by debt-light cash flows, capped below the risk-free rate. Failure risk is minimal given net cash and no balance-sheet leverage on client assets.
Value drivers
| Return on equity (normalized) | 11.5% |
| Book-value growth (Y1) | 4.0% |
| Terminal book growth | 3.0% |
| Beta | 1.10 |
| Failure probability | 1.0% |
| Cost of equity | 9.9% |
Valuation bridge
| PV of excess returns | 1.35B |
| PV of terminal excess | 1.50B |
| Equity value | 14.78B |
| ÷ shares → per share | $29.10 |
News
score · 8 articles
- I Almost Didn't Buy This 6%+ Yielder Because of Industry Headwinds. Here's Why I'm Glad I Bought It Anyway.
- ETFs Open Up The World To Franklin Templeton Investors
- Franklin's Arm Set to Expand Alternative Platform With Stoneshield Deal
- NTRS Deepens APAC Asset Servicing Reach With Perpetual Tie-Up
- Can Invesco's AUM Expansion Strategy Drive Steady Revenue Growth?
- 3 Top Dividend Stocks to Maximize Your Retirement Income
- Social Security’s 2027 COLA Raise Is the Biggest in 3 Years — But These 5 Dividend Stocks Pay You More
- CFO Reduces Holdings of Financial Stock by More Than 61,000 Shares, Following 33% Rally
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 12.08B | 11.5% | 190.23M | 173.05M |
| 2 | 12.56B | 11.5% | 197.83M | 163.72M |
| 3 | 13.05B | 11.5% | 205.53M | 154.73M |
| 4 | 13.54B | 11.5% | 213.29M | 146.08M |
| 5 | 14.04B | 11.5% | 221.11M | 137.76M |
| 6 | 14.54B | 11.5% | 228.97M | 129.78M |
| 7 | 15.04B | 11.5% | 236.86M | 122.13M |
| 8 | 15.54B | 11.5% | 244.76M | 114.81M |
| 9 | 16.04B | 11.5% | 252.64M | 107.81M |
| 10 | 16.54B | 11.5% | 260.50M | 101.12M |
Key risks
- Secular fee compression and passive rotation permanently capping ROE below cost of equity
- Organic outflows in core active fixed income and equity strategies as rate tailwinds fade
- Margin dilution and integration risk from serial acquisitions (Putnam, Perpetual, Stoneshield)
Catalysts
- Operating margin recovery toward 15%+ as acquisition synergies and alternatives mix scale
- Rate cuts reigniting fixed-income and multi-asset flows, lifting fee-related earnings
- Expansion of alternatives/alts distribution validating the diversification strategy