Franklin Financial Services Corporation's (NASDAQ:FRAF) investors are due to receive a payment of $0.32 per share on 26th of February. This means that the annual payment will be 3.7% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Franklin Financial Services

Franklin Financial Services' Payment Expected To Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Having distributed dividends for at least 10 years, Franklin Financial Services has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Franklin Financial Services' payout ratio of 51% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS could fall by 7.4% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the future payout ratio could be 59%, which is definitely feasible to continue.

Franklin Financial Services Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from $0.68 total annually to $1.28. This implies that the company grew its distributions at a yearly rate of about 6.5% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Come By

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Over the past five years, it looks as though Franklin Financial Services' EPS has declined at around 7.4% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Franklin Financial Services' Dividend

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Franklin Financial Services that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.