Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 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

Based in Abilene, First Financial Bankshares (FFIN) is in the Finance sector, and so far this year, shares have seen a price change of 16.9%. Currently paying a dividend of $0.18 per share, the company has a dividend yield of 2.03%. In comparison, the Banks - Southwest industry's yield is 0.61%, while the S&P 500's yield is 1.64%.

Taking a look at the company's dividend growth, its 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%. 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 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 $1.51 per share, which represents a year-over-year growth rate of 8.63%.

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.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that FFIN is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).