In This Article:
Franklin Financial Services Corporation (NASDAQ:FRAF) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Franklin Financial Services investors that purchase the stock on or after the 1st of November will not receive the dividend, which will be paid on the 27th of November.
The company's next dividend payment will be US$0.32 per share, on the back of last year when the company paid a total of US$1.28 to shareholders. Calculating the last year's worth of payments shows that Franklin Financial Services has a trailing yield of 4.2% on the current share price of US$30.38. If you buy this business for its dividend, you should have an idea of whether Franklin Financial Services's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Franklin Financial Services
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Franklin Financial Services paid out a comfortable 40% of its profit last year.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see how much of its profit Franklin Financial Services paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Franklin Financial Services's earnings per share have risen 18% per annum 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 past 10 years, Franklin Financial Services has increased its dividend at approximately 6.5% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Has Franklin Financial Services got what it takes to maintain its dividend payments? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, Franklin Financial Services appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.