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 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Franklin Financial Services' shares before the 31st of January in order to receive the dividend, which the company will pay on the 28th of February.
The company's next dividend payment will be US$0.32 per share, and in the last 12 months, the company paid a total of US$1.28 per share. Calculating the last year's worth of payments shows that Franklin Financial Services has a trailing yield of 3.8% on the current share price of US$33.66. If you buy this business for its dividend, you should have an idea of whether Franklin Financial Services's dividend is reliable and sustainable. As a result, readers should always check whether Franklin Financial Services has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Franklin Financial Services
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Franklin Financial Services's payout ratio is modest, at just 40% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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?
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Franklin Financial Services's earnings have been skyrocketing, up 45% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Franklin Financial Services has delivered 6.5% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
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 is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, Franklin Financial Services appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Want to learn more about Franklin Financial Services's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.