It looks like Franklin Financial Services Corporation (NASDAQ:FRAF) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Franklin Financial Services' shares on or after the 6th of February, you won't be eligible to receive the dividend, when it is paid on the 25th of February.

The company's upcoming dividend is US$0.33 a share, following on from the last 12 months, when the company distributed a total of US$1.32 per share to shareholders. Last year's total dividend payments show that Franklin Financial Services has a trailing yield of 2.6% on the current share price of US$51.01. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Franklin Financial Services can afford its dividend, and if the dividend could grow.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Franklin Financial Services paying out a modest 28% of its earnings.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Franklin Financial Services's earnings per share have been growing at 10% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Franklin Financial Services has delivered an average of 5.7% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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.

Final Takeaway

Should investors buy Franklin Financial Services for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Franklin Financial Services ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

So while Franklin Financial Services looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Franklin Financial Services is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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.