Franklin Financial Services (NASDAQ:FRAF) Will Pay A Larger Dividend Than Last Year At US$0.32

Franklin Financial Services Corporation (NASDAQ:FRAF) has announced that it will be increasing its dividend on the 25th of August to US$0.32. This takes the dividend yield to 3.8%, which shareholders will be pleased with.

See our latest analysis for Franklin Financial Services

Franklin Financial Services' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, Franklin Financial Services' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 9.1% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was US$1.08, compared to the most recent full-year payment of US$1.24. This means that it has been growing its distributions at 1.4% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Franklin Financial Services has seen EPS rising for the last five years, at 9.1% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Franklin Financial Services Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Franklin Financial Services that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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