Dividend Growth Investing in a Low-Yield World: How Franklin Rising Dividends Fund Navigates the Challenge

In an era where traditional income-generating assets like bonds and savings accounts offer meager returns, dividend growth investing has emerged as a compelling strategy for investors seeking resilience and stability. The Franklin Rising Dividends Fund (FRDPX) exemplifies this approach, leveraging a disciplined focus on high-quality, dividend-growing companies to navigate the challenges of a low-yield environment. By prioritizing firms with a proven track record of increasing payouts, the fund aims to deliver both consistent income and long-term capital appreciation—a rare combination in today's market.

The fund's strategy is anchored in three pillars: Process, People, and Parent. The Process Pillar emphasizes a repeatable, rules-based approach to security selection, favoring companies that have consistently raised dividends for years. The People Pillar underscores the expertise of Franklin Templeton's management team, which has a history of outperforming benchmarks through disciplined stock-picking. The Parent Pillar ensures alignment with investor interests, as Franklin Templeton's institutional priorities reinforce the fund's commitment to long-term value creation.

As of 2025, the fund's portfolio includes 59 holdings, with a low turnover rate of 12%, reflecting a long-term, buy-and-hold philosophy. While it is primarily U.S.-focused, the fund allocates up to 25% of assets to international markets, diversifying its exposure to global dividend champions. This approach has led to a portfolio rich in sectors like energy, industrials, and consumer goods, where companies like Petroleo Brasileiro S.A. (PBR) and Energy Transfer LP (ET) stand out. PBR, for instance, offers a 14.6% yield and operates in Brazil's energy sector, while ET, a midstream MLP, provides a 7.4% yield and benefits from stable cash flows via long-term contracts.

However, the fund's strategy is not without trade-offs. In Q2 2025, it underperformed the S&P 500, partly due to its lack of exposure to high-growth tech stocks like NVIDIA, which surged during the period. This highlights a key tension in dividend investing: the sacrifice of short-term growth potential for the security of consistent income. Yet, for investors prioritizing resilience over speculation, this trade-off is justified.

The fund's 1.04% 30-day SEC yield and a 1.00% trailing yield provide a modest but reliable income stream, particularly in a low-yield environment. Its 0.52% net expense ratio is also competitive, reflecting expense waivers that benefit shareholders. While the fund's 3-star Morningstar rating suggests moderate risk-adjusted returns, its focus on quality dividend payers aligns with the needs of income-oriented investors.

Strategic Positioning in a Low-Yield Environment

Dividend growth investing thrives in low-yield environments by offering two critical advantages: capital preservation and compounding income. High-quality dividend payers, such as Sonoco Products (SON) and Winnebago Industries (WGO), are typically mature companies with strong balance sheets and pricing power. These firms have raised dividends for decades, even during economic downturns, making them less volatile than speculative growth stocks.

For example, Sonoco's 4.9% yield is supported by a 42-year streak of dividend increases, while Winnebago's 4.8% yield reflects its dominance in the recreational vehicle market. Both companies exemplify the fund's focus on industries with durable cash flows and loyal customer bases. Meanwhile, international holdings like Copa Holdings (CPA), a Latin American airline with a 6.1% yield, add geographic diversification and exposure to emerging markets with growing middle classes.

Risks and Considerations

While the fund's strategy is robust, investors should be mindful of sector concentration. Energy and industrials, which together account for a significant portion of the portfolio, are sensitive to commodity prices and economic cycles. Additionally, the fund's underperformance relative to the S&P 500 in 2025 underscores the risk of missing out on high-growth sectors. For investors seeking a balanced approach, pairing the fund with a growth-oriented portfolio could mitigate this risk.

Investment Advice

For investors seeking income in a low-yield world, the Franklin Rising Dividends Fund offers a compelling case. Its focus on quality dividend payers, combined with international diversification and a low-turnover approach, positions it to deliver stable returns. However, it is best suited for those with a long-term horizon and a tolerance for moderate volatility. Given its 2025 performance and strategic alignment with dividend growth principles, the fund remains a strong candidate for income-focused portfolios.

In conclusion, dividend growth investing is not a panacea for the challenges of a low-yield environment, but it is a disciplined, time-tested strategy that aligns with the needs of income-driven investors. The Franklin Rising Dividends Fund, with its emphasis on resilience and quality, exemplifies how this approach can thrive even in uncertain markets. As the fund continues to adapt its portfolio to include emerging sectors like sustainable infrastructure (via holdings like HA Sustainable Infrastructure Capital (HASI)), it reinforces its relevance in an evolving financial landscape.