Franklin Resources (BEN 0.16%) and T. Rowe Price (TROW -0.43%) are two of the oldest, most established asset managers in the world. Both are Dividend Aristocrats, meaning they have each increased their annual dividend for at least 25 straight years.
Both are good choices for dividend investors, but one is superior to the other. Let's take a closer look at both of these companies to see which is the better dividend stock for 2021.
Franklin Resources: 38 years of dividend increases and counting
Franklin Resources has boosted its dividend annually for the past 38 consecutive years. That's an impressive streak, which speaks to its long-term stability, through the ups and downs of the broader economy. The company, which is the parent of investment management firm Franklin Templeton, and its subsidiaries, currently pays out a quarterly dividend of $0.27 per share. That comes out to $1.08 per share annually. Over the last five years, the dividend has increased by about 50%. Franklin has a dividend yield of 4.5%, which is the percentage of the share price that goes to the dividend. It has a payout ratio, which is the percentage of net earnings that gets distributed via dividends, of 39%. As companies go, that is a higher-than-average yield and a very sustainable payout ratio.
Franklin Resources is a company in transition. 10 years ago, Franklin was the 14th-largest asset manager in the U.S. and 24th-largest in the world, with about $553 billion in assets under management (AUM). At the time, it was one of the fastest-growing in the U.S. By the end of the second quarter of 2020, Franklin was 39th largest in the world with just $622 billion in AUM. As an active manager, it failed to adapt to the surge in indexing/ETFs, spurred by a 10-year bull market, and had relatively poor performance compared to its peers. The result was a loss of market share. That is reflected in a stock price that has fallen 43% over the last 10 years through Dec. 1. This year it's down about 6.6% as of Dec. 10.
In July of this year, Franklin acquired rival asset manager Legg Mason, which brought in nearly $800 billion in AUM to the firm. Now the company has $1.4 trillion in AUM and is the 12th largest in the U.S. Legg Mason is primarily a fixed income manager with mostly institutional assets, complementing Franklin's mostly equity retail assets. The scale and diversity of investment expertise should help, but Franklin also bought over $2 billion in debt from Legg Mason.
T. Rowe Price has a high dividend payout
Like Franklin Resources, T. Rowe Price is also a Dividend Aristocrat, with 33 straight years of annual dividend increases. T. Rowe Price offers one of the best dividend payouts in the financial sector. In the fourth quarter, the board approved a $0.90 quarterly dividend per share, which calculates out to $3.60 per share annually. It has a slightly lower yield than Franklin at 2.4%, but a similar payout ratio of 39%. Over the last five years, the dividend has increased by 74%.
Unlike Franklin, T. Rowe Price has experienced terrific growth over the past 10 years. In 2010, it had about $391 billion in AUM and was ranked No. 41 in the world in that category. Today, as of the end of November, the firm has $1.4 trillion in assets -- that's without any major acquisitions like Franklin made in July, where it doubled its assets. While T. Rowe is also primarily an active manager of equity assets, it has been able to grow through superior performance. In addition, T. Rowe Price has a pristine balance sheet with virtually no debt and about $2.2 billion in cash and cash equivalents. This is an ideal position to invest in new products, like a line of ETFs it recently rolled out, and offer strong dividends back to investors.
It should also be noted that T. Rowe Price's stock price is up 22.6% year to date and has a total return over the last 10 years of about 216.2% through Dec. 10.
So, ultimately, the better buy for dividend investors is T. Rowe Price. It pays out a higher dividend, has more stability with no debt, has proven earnings power, and has produced solid long-term stock price gains. T. Rowe Price is truly one of the best income stocks you'll find.