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. Investors can purchase shares before the 31st of October in order to be eligible for this dividend, which will be paid on the 27th of November.
Franklin Financial Services's next dividend payment will be US$0.3 per share, and in the last 12 months, the company paid a total of US$1.2 per share. Looking at the last 12 months of distributions, Franklin Financial Services has a trailing yield of approximately 3.4% on its current stock price of $35.73. If you buy this business for its dividend, you should have an idea of whether Franklin Financial Services's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. That's why it's good to see Franklin Financial Services paying out a modest 33% of its earnings.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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. 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Franklin Financial Services has lifted its dividend by approximately 1.1% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Is Franklin Financial Services worth buying for its dividend? 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. We think this is a pretty attractive combination, and would be interested in investigating Franklin Financial Services more closely.
Want to learn more about Franklin Financial Services's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.