First Financial Bankshares (NASDAQ:FFIN) Is Increasing Its Dividend To $0.18

First Financial Bankshares, Inc. (NASDAQ:FFIN) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of July to $0.18. Although the dividend is now higher, the yield is only 2.7%, which is below the industry average.

See our latest analysis for First Financial Bankshares

First Financial Bankshares' Payment Expected To Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

First Financial Bankshares has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on First Financial Bankshares' last earnings report, the payout ratio is at a decent 42%, meaning that the company is able to pay out its dividend with a bit of room to spare.

EPS is set to fall by 2.2% over the next 12 months. But if the dividend continues along the path it has been on recently, we estimate the future payout ratio could be 48%, which would be comfortable for the company to continue in the future.

First Financial Bankshares Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.25 in 2013 to the most recent total annual payment of $0.72. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. First Financial Bankshares has seen EPS rising for the last five years, at 11% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like First Financial Bankshares' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for First Financial Bankshares that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.