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 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.

First Merchants in Focus

First Merchants (FRME Quick QuoteFRME – Free Report) is headquartered in Muncie, and is in the Finance sector. The stock has seen a price change of 11.83% since the start of the year. Currently paying a dividend of $0.35 per share, the company has a dividend yield of 3.14%. In comparison, the Banks – Midwest industry’s yield is 2.9%, while the S&P 500’s yield is 1.53%.

Taking a look at the company’s dividend growth, its current annualized dividend of $1.40 is up 0.7% from last year. In the past five-year period, First Merchants has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.79%. 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 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for FRME for this fiscal year. The Zacks Consensus Estimate for 2025 is $3.79 per share, which represents a year-over-year growth rate of 9.22%.

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.

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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FRME presents a compelling investment opportunity; it’s not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).