Should You Buy Franklin Financial Services Corporation (NASDAQ:FRAF) For Its Upcoming Dividend?
Franklin Financial Services Corporation (NASDAQ:FRAF) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Franklin Financial Services’ shares on or after the 5th of August, you won’t be eligible to receive the dividend, when it is paid on the 25th of August.
The company’s next dividend payment will be US$0.32 per share, on the back of last year when the company paid a total of US$1.28 to shareholders. 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 $33.76. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.
See our latest analysis for Franklin Financial Services
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. Franklin Financial Services paid out a comfortable 29% of its profit last year.
Generally speaking, the lower a company’s payout ratios, the more resilient its dividend usually is.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Franklin Financial Services’s earnings per share have been growing at 11% a year 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 1.7% dividend growth per year on average over the past 10 years. 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.
The Bottom Line
Is Franklin Financial Services worth buying for its dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term – as long as it’s done without issuing too many new shares. Overall, Franklin Financial Services looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example – Franklin Financial Services has 1 warning sign we think you should be aware of.
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.
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. 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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