Why First Financial Bankshares is a Great Dividend Stock Right Now

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

First Financial Bankshares in Focus

First Financial Bankshares FFIN is headquartered in Abilene, and is in the Finance sector. The stock has seen a price change of -2.28% since the start of the year. The commercial banker operating mostly in Texas is currently shelling out a dividend of $0.18 per share, with a dividend yield of 2.43%. This compares to the Banks - Southwest industry's yield of 0.7% and the S&P 500's yield of 1.58%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.72 is up 1.4% from last year. Over the last 5 years, First Financial Bankshares has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.95%. Future dividend growth will depend on earnings growth as well as 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 51%, meaning it paid out 51% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for FFIN for this fiscal year. The Zacks Consensus Estimate for 2024 is $1.48 per share, representing a year-over-year earnings growth rate of 6.47%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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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