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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. Investors can go to the Barchart Learn Center to study the risks associated with shorting puts.
