Franklin Financial Services Corporation (NASDAQ:FRAF) will pay a dividend of $0.32 on the 22nd of May. This makes the dividend yield 4.6%, which will augment investor returns quite nicely.

See our latest analysis for Franklin Financial Services

Franklin Financial Services' Earnings Will Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Franklin Financial Services has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Franklin Financial Services' payout ratio of 41% is a good sign as this means that earnings decently cover dividends.

Looking forward, earnings per share could rise by 17.2% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the future payout ratio could be 38% by next year, which is in a pretty sustainable range.

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 2014, the annual payment back then was $0.68, compared to the most recent full-year payment of $1.28. This implies that the company grew its distributions at a yearly rate of about 6.5% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Franklin Financial Services has impressed us by growing EPS at 17% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Franklin Financial Services Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on Franklin Financial Services management tenure, salary, and performance. 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.