Deep Dive: Veteran manager of $19 billion Franklin dividend fund names six of his favorite stocks

In the 22 years that Don Taylor has been managing the Franklin Rising Dividends Fund, assets under management have ballooned to $18.9 billion. It’s clear that investors have been pleased with the fund’s long-term performance.

Despite the fund’s name, Taylor isn’t focused on selecting stocks for dividend income. Instead, he’s looking for share-price gains stemming from companies boosting their dividends. To him, it doesn’t matter if a company’s dividend yield is low.

Taylor is based in New York and runs a total of $22 billion using the same strategy he uses for the Franklin Rising Dividends Fund FRDPX, -1.02%  The fund’s class A shares are rated three stars (out of five) by Morningstar, and have produced an average annual return of 10.2% (excluding sales charges) over 10 years, compared with 10.8% for the S&P 500 Index SPX, +0.52%

In an interview on July 10, Taylor named six companies that he expects to begin or continue raising dividend payouts by 10% or more:

EOG

Taylor likes the oil industry, not only because of the rise in commodity prices (West Texas crude CL1, -4.85%  was trading for $74.21 a barrel July 10, up 38% from the end of 2017) but because many industry players are either at the end of major production investments or reluctant to commit to significant development spending right now. This bodes well for cash flow and dividend increases.

EOG Resources EOG, -0.70%  has a low dividend yield of 0.58%. However, the company raised its payout 10% in February and Taylor expects to see “bigger increases."

Chevron

Chevron CVX, +0.43%  is “winding down several capital projects,” Taylor said, a development that is adding to cash flow. The company increased its dividend by only 4% in January, but looking ahead, Taylor expects to see “large increases in percentage terms.” Chevron’s current dividend yield is 3.51%, the highest of any stock listed in this article.

Praxair

Praxair PX, -0.54%  is getting closer to receiving regulatory approval for its merger with Linde LNAGF, +2.30% LIN, +0.49% after which Taylor expects “higher dividend growth than we have seen over the past few years.” The company raised its payout by 5% in January. The stock’s current dividend yield is 1.98%. 

Microsoft

After years of being bashed, Microsoft MSFT, +1.45%  is a favorite among investors again. The stock has returned 20% so far in 2018, following a 41% gain in 2017. The company raised its dividend by 8% last September, but Taylor expects more gravy next time around. Microsoft was the largest holding of the Franklin Rising Dividend Fund as of May 31. Taylor is confident about the company, saying “there is a long way to go” as it expands its cloud-service offerings. The shares have a dividend yield of 1.65%.

Roper

Roper Technologies was the second-largest holding of the fund as of May 31. The stock’s current dividend yield is only 0.59%. However, the payout was increased by 18% in December. Taylor likes how Roper is managed. “They are using a lot of cash flow to buy other companies with good cash-flow characteristics,” he said.

Honeywell

Taylor has long been a fan of Honeywell, the fund’s sixth-largest holding as of May 31. The company raised its dividend by 12% in September. The shares have a dividend yield of 2.01%.

Top holdings of the fund

Here are the top 10 stocks (of 69) held by the Franklin Rising Dividend Fund as of May 31:

Company Ticker Share of fund Dividend yield Most recently announced percentage dividend increase Total return - 2018 through July 10 Total return - 2017 Total return - 3 years Total return - 5 years Microsoft Corp. MSFT 5.5% 1.65% 8% 20% 41% 146% 234% Roper Technologies Inc. ROP 5.3% 0.59% 18% 9% 42% 66% 126% Stryker Corp. SYK 3.9% 1.08% 12% 13% 31% 88% 182% Albemarle Corp. ALB 3.5% 1.40% 11% -25% 50% 86% 59% Becton, Dickinson and Co. BDX 3.4% 1.23% 3% 15% 31% 78% 168% Honeywell International Inc. HON 3.4% 2.01% 12% -3% 35% 55% 103% Praxair Inc. PX 3.4% 1.98% 5% 9% 35% 53% 59% Accenture PLC Class A ACN 3.3% 1.60% 10% 10% 33% 79% 150% Texas Instruments Inc. TXN 3.3% 2.18% 24% 10% 47% 151% 254% Medtronic PLC MDT 2.8% 2.29% 9% 9% 16% 25% 83% Sources: Morningstar, FactSet

If you are considering investing in the Franklin Rising Dividends Fund, it is important not only to read the fund’s prospectus, but to consider which share class might be best for you. Some share classes have sales charges, and annual expenses differ greatly.

Certain share classes may be available to you based on whether you work with an investment adviser or broker, or invest through a retirement account. It is important to consider total annual expenses, including your adviser’s fee. Neither the adviser’s fee nor sales charges are included in the historical returns quoted in the mutual-fund industry.

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