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.
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.
Headquartered in Muncie, First Merchants (FRME) is a Finance stock that has seen a price change of 1.41% so far this year. The bank is currently shelling out a dividend of $0.36 per share, with a dividend yield of 3.79%. This compares to the Banks - Midwest industry's yield of 2.82% and the S&P 500's yield of 1.35%.
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.
FRME is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2026 is $4.14 per share, representing a year-over-year earnings growth rate of 6.43%.
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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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
