Franklin Financial Services (NASDAQ:FRAF) Has Announced That It Will Be Increasing Its Dividend To US$0.32

Franklin Financial Services Corporation (NASDAQ:FRAF) will increase its dividend on the 24th of November to US$0.32. This will take the dividend yield to an attractive 3.8%, providing a nice boost to shareholder returns.

See our latest analysis for Franklin Financial Services

Franklin Financial Services' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Franklin Financial Services' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 13.9% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was US$1.08 in 2011, and the most recent fiscal year payment was US$1.28. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

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. We are encouraged to see that Franklin Financial Services has grown earnings per share at 14% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Franklin Financial Services' prospects of growing its dividend payments in the future.

We Really Like Franklin Financial Services' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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 of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Franklin Financial Services that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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.

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