Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Franklin Financial Services Corporation (NASDAQ:FRAF) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 5th of November to receive the dividend, which will be paid on the 25th of November.
Franklin Financial Services's next dividend payment will be US$0.30 per share, on the back of last year when the company paid a total of US$1.20 to shareholders. Based on the last year's worth of payments, Franklin Financial Services stock has a trailing yield of around 5.5% on the current share price of $22. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Franklin Financial Services paid out a comfortable 41% of its profit last year.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Franklin Financial Services, with earnings per share up 7.6% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Franklin Financial Services has lifted its dividend by approximately 1.1% a year on average.
To Sum It Up
Has Franklin Financial Services got what it takes to maintain its dividend payments? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Overall, Franklin Financial Services looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
While it's tempting to invest in Franklin Financial Services for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Franklin Financial Services you should be aware of.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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