It looks like Franklin Electric Co., Inc. (NASDAQ:FELE) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 31st of July in order to be eligible for this dividend, which will be paid on the 15th of August.
Franklin Electric's next dividend payment will be US$0.14 per share, and in the last 12 months, the company paid a total of US$0.58 per share. Calculating the last year's worth of payments shows that Franklin Electric has a trailing yield of 1.2% on the current share price of $47.15. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Franklin Electric can afford its dividend, and if the dividend could grow.
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. That's why it's good to see Franklin Electric paying out a modest 26% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 23% of its free cash flow in the last year.
It's positive to see that Franklin Electric's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Franklin Electric, with earnings per share up 3.7% on average over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
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 Electric has lifted its dividend by approximately 8.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
From a dividend perspective, should investors buy or avoid Franklin Electric? Earnings per share have been growing moderately, and Franklin Electric is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Franklin Electric is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Franklin Electric, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for Franklin Electric? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.