First Financial Bankshares, Inc. (NASDAQ:FFIN) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of October to $0.18. This takes the annual payment to 2.5% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for First Financial Bankshares

First Financial Bankshares' Dividend Forecasted To Be Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable.

First Financial Bankshares has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but First Financial Bankshares' payout ratio of 44% is a good sign as this means that earnings decently cover dividends.

Over the next year, EPS is forecast to fall by 4.2%. But if the dividend continues along recent trends, we estimate the future payout ratio could be 51%, which we would consider to be quite comfortable looking forward, with most of the company's earnings left over to grow the business in the future.

First Financial Bankshares Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $0.25, compared to the most recent full-year payment of $0.72. This means that it has been growing its distributions at 11% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

First Financial Bankshares Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. First Financial Bankshares has impressed us by growing EPS at 8.7% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We Really Like First Financial Bankshares' Dividend

Overall, a dividend increase is always good, and we think that First Financial Bankshares is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.