All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Headquartered in Abilene, First Financial Bankshares (FFIN) is a Finance stock that has seen a price change of 3.63% so far this year. The commercial banker operating mostly in Texas is currently shelling out a dividend of $0.19 per share, with a dividend yield of 2.03%. This compares to the Banks - Southwest industry's yield of 1.28% and the S&P 500's yield of 1.53%.
Looking at dividend growth, the company's current annualized dividend of $0.76 is up 5.6% from last year. Over the last 5 years, First Financial Bankshares has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.93%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. First Financial's current payout ratio is 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FFIN for this fiscal year. The Zacks Consensus Estimate for 2025 is $1.80 per share, which represents a year-over-year growth rate of 15.38%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FFIN is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of #3 (Hold).
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First Financial Bankshares, Inc. (FFIN): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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