First Merchants (FRME) Could Be a Great Choice
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.
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 Muncie, First Merchants (FRME) is a Finance stock that has seen a price change of 5.2% so far this year. Currently paying a dividend of $0.36 per share, the company has a dividend yield of 3.65%. In comparison, the Banks - Midwest industry's yield is 2.82%, while the S&P 500's yield is 1.47%.
Looking at dividend growth, the company's current annualized dividend of $1.44 is up 0.7% from last year. Over the last 5 years, First Merchants has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.24%. 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 Merchants's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FRME for this fiscal year. The Zacks Consensus Estimate for 2026 is $4.19 per share, which represents a year-over-year growth rate of 7.71%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FRME 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 Merchants Corporation (FRME): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Source Zacks-com
