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Franklin Financial Services Corporation (NASDAQ:FRAF) has announced that it will pay a dividend of $0.32 per share on the 24th of August. Based on this payment, the dividend yield on the company's stock will be 4.1%, which is an attractive boost to shareholder returns.
See our latest analysis for Franklin Financial Services
Franklin Financial Services' Dividend Forecasted To Be Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.
Having distributed dividends for at least 10 years, Franklin Financial Services has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 32%, which means that Franklin Financial Services would be able to pay its last dividend without pressure on the balance sheet.
Over the next year, EPS could expand by 15.5% if recent trends continue. Assuming the dividend continues along recent trends, we think the future payout ratio could be 30% by next year, which is in a pretty sustainable range.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $1.08 in 2012 to the most recent total annual payment of $1.28. This means that it has been growing its distributions at 1.7% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Franklin Financial Services has impressed us by growing EPS at 15% per year over the past five years. Franklin Financial Services definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Franklin Financial Services Looks Like A Great Dividend Stock
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Franklin Financial Services that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.