Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

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 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

First Financial Bankshares (FFIN) is headquartered in Abilene, and is in the Finance sector. The stock has seen a price change of 1.91% 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 2.33%. This compares to the Banks - Southwest industry's yield of 0.79% and the S&P 500's yield of 1.57%.

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%. 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%. This means 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 $1.49 per share, which represents a year-over-year growth rate of 7.19%.

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. 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 presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).