First Merchants (FRME) is a Top Dividend Stock Right Now: Should You Buy?
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
First Merchants in Focus
Based in Muncie, First Merchants (FRME) is in the Finance sector, and so far this year, shares have seen a price change of -6.37%. Currently paying a dividend of $0.32 per share, the company has a dividend yield of 3.26%. In comparison, the Banks - Midwest industry's yield is 2.69%, while the S&P 500's yield is 1.65%.
Looking at dividend growth, the company's current annualized dividend of $1.28 is up 13.3% from last year. Over the last 5 years, First Merchants has increased its dividend 4 times on a year-over-year basis for an average annual increase of 11.27%. 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 Merchants's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FRME expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $3.83 per share, with earnings expected to increase 0.52% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 must be conscious 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).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
First Merchants Corporation (FRME) : Free Stock Analysis Report
To read this article on Zacks.com click here.
