Franklin Financial Services Corporation (NASDAQ:FRAF) has announced that it will be increasing its periodic dividend on the 28th of May to $0.33, which will be 3.1% higher than last year's comparable payment amount of $0.32. The payment will take the dividend yield to 3.3%, which is in line with the average for the industry.

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Franklin Financial Services' Payment Expected To Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Franklin Financial Services has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 51%, which means that Franklin Financial Services would be able to pay its last dividend without pressure on the balance sheet.

EPS is set to fall by 7.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the future payout ratio could be 59%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Franklin Financial Services

Franklin Financial Services Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.68 in 2015 to the most recent total annual payment of $1.28. This works out to be a compound annual growth rate (CAGR) of approximately 6.5% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. It's not great to see that Franklin Financial Services' earnings per share has fallen at approximately 7.5% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Our Thoughts On Franklin Financial Services' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Franklin Financial Services that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.