Franklin Resources Stock Might Be A Safe Haven With Its 7.2% Dividend Yield

Franklin Resources, Inc_ logo on phone-by Piotr Swat via Shutterstock

Franklin Resources, Inc_ logo on phone-by Piotr Swat via Shutterstock
 

Franklin Resources (BEN) stock now has an almost 7.20% annual yield, which could make it a haven for investors in this crumbling market. Its average yield has been much lower over the last five years.

BEN is at $17.80 in midday trading on Friday, April 4, down just 0.67% with the market crumbling. Given its annual $1.28 dividend per share (DPS), its present yield is 7.19% (i.e., $1.28/$17.80).

This is well above its average yield of 4.48% according to Morningstar. In fact, in 2024, BEN stock had an average yield of 6.16%. 
 


I discussed this in my March 7 Barchart article, “Franklin Resources Stock is Value Investors' Favorite: 6.3% Yield and 9x P/E.”

That implies that BEN stock could rebound almost 17% if it trades at last year's yield:

  $1.28 DPS / 0.616 = $20.78 target

  $20.78 / $17.80 = 1.1674 = +16.7% upside

The point is that the high yield acts as a tether for value, holding the stock up. In fact, if the stock were to trade anywhere at its average yield over the last 2 years, the yield would be 5.1%:

  $1.28 / 0.051 = $25.10 target 

  $25.10 / $17.80 = 1.41 = +41%


Shorting OTM Puts

One way to set a lower buy-in target and get paid for this is to short out-of-the-money puts. For example, the May 16 expiry period shows that the $17.50 strike price put has a $1.00 midpoint premium.

That provides a short-seller an immediate yield of 5.714% ($1.00 / $17.50) for a strike price that is 2.6% below today's price.
 


This means that an investor who secures $1,750 with their brokerage firm can enter an order to “Sell to Open” 1 put contract at $17.50. The account will immediately receive $100, or 5.7% of the investment made.

Moreover, even if the stock falls to $17.50 or lower within the next 42 days to expiry (DTE), the investor's breakeven point is lower:

  $17.50 - $1.00 income = $16.50 breakeven

  $16.50 / $17.69  -1 = -6.73% below today's trading price.

Just think about that. With the investor's breakeven at $16.50 after an assignment, the annual dividend yield is over 7.75%

  $1.28 DPS / $16.50 = 0.077575 = 7.76% annual yield

In other words, this is a good way to set a lower buy-in target price and still earn a high yield even if BEN stock does not fall to the strike price.


Roll Over Trades

Moreover, last month we discussed shorting the April 17 $20 put strike for a premium of 80 cents. Those puts are now in the money, and trade for $2.35 at the midpoint. 

That means the investor has a loss. But the investor can roll this trade over. Here is how that would work:

  Buy to Close $20 Put at $2.35 (April 17), + Sell to Open $17.50 at $1.00 (May 16) = net debit of $1.35; Plus net credit of $0.80 (last month), net cost (debit) is $0.55

  Breakeven: $17.50 +0.55 = $18.05. Unrealized loss: -$0.49 (i.e., $18.05 - $17.66 trading price).

This is much better than the existing situation, where the account would have a much higher unrealized loss: ($20-$0.80 = $19.20, or -$1.54 unrealized loss).

On the other hand, an investor may be willing to hold the shares after being assigned the shares at $20.00 on April 17 (assuming it stays below that strike price). After all the yield will be high, and the investor can expect BEN stock may recover to between $20.78 and $25.10, as shown above.

The bottom line is that the investor in this high-yield stock can make extra income shorting out-of-the-money (OTM) puts.


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On the date of publication, the author did not have (either directly or indirectly) positions in any of the securities mentioned in this article.

Mark R. Hake, CFA, does not provide financial ...

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