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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

First Financial Bankshares in Focus

Based in Abilene, First Financial Bankshares (FFIN) is in the Finance sector, and so far this year, shares have seen a price change of 17.43%. Currently paying a dividend of $0.18 per share, the company has a dividend yield of 2.02%. In comparison, the Banks - Southwest industry's yield is 0.7%, while the S&P 500's yield is 1.49%.

In terms of dividend growth, the company's current annualized dividend of $0.72 is up 1.4% from last year. First Financial Bankshares has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 10.69%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm'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.

FFIN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $1.52 per share, representing a year-over-year earnings growth rate of 9.35%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that FFIN is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).