Franklin Manager Bullish on Large Caps

Don Taylor, portfolio manager for the Franklin Rising Dividends Fund, says some companies are raising dividends if you know where to look. Some of his favorite names include P&G, Praxair and Wal-Mart. In this video, Taylor speaks about his investment strategy.

Companies represented in the benchmark S&P 500 index, which has fallen by half since its peak in October 2007, have withheld $40.8 billion in payouts to shareholders by slashing dividends.

Forty-one companies in the 500-member index have cut their dividends this year, compared with 61 reducing payouts of $40.6 billion in all of 2008.

But fund manager Don Taylor is still finding dividend-rich investments.

"A lot of financial companies have cut their dividends recently, but many other companies in consumer staples and health care have been able to increase their dividend payout," says Taylor, who oversees the $1.35 billion Franklin Rising Dividends Fund(FRDPX).

Taylor buys shares of companies that have increased dividends in eight of the past 10 years and doubled payouts over the same period. He prefers businesses that distribute less than 65% of their earnings, so they still have money left to invest in operations. A company's debt ought to be no greater than half of its capitalization, and its price-to-earnings ratio should be in the lower half of a 10-year range.

The result is a fund with fewer than 45 stocks and a turnover rate of 4%, compared with an average of about 50%. The fund has fallen 22% this year and 15% annually over the past three years, 80 basis points better than the S&P 500. Over 10 years, Franklin Rising Dividends has returned 1.8% a year on average, more than five percentage points better than the index, ranking in the top 5% of its Morningstar peer group. Morningstar gives the fund four out of a possible five stars.