First Horizon's Dividend Strategy: A Beating Heart in a Low-Yield World

In an era where Treasury yields hover near 4.40% and corporate bond markets offer little allure, income-focused investors are left scouring for reliable cash flows. Enter First Horizon Corporation (FHN), a regional bank that has quietly carved out a niche as a dividend stalwart. With a current yield of 5.34% (as of July 2025), FHN stands out in a sector where most peers offer yields in the 4.10% range. But sustainability matters more than numbers alone. Let's dissect whether FHN's dividend strategy can weather the storms of a low-yield environment—and why this might matter for long-term income seekers.

The Dividend: A Modest but Steady Pulse

First Horizon's dividend history reads like a textbook case of prudence. Since 2020, the company has paid a consistent $0.15 per share quarterly, translating to an annualized $0.60 payout. While the dividend hasn't grown since 2020, the payout ratio of 31.7% (as of Q2 2025) tells a different story. This is significantly lower than the 41.4% reported earlier in the year and far below the sector average of 45%. The gap between these figures—31.7% versus 45%—is critical. It suggests First Horizon has ample room to raise dividends if earnings expand, a rare luxury in the financial sector.

Financial Stability: A Fortress Built for Rain

The real magic lies in FHN's capital structure. First Horizon's Common Equity Tier 1 (CET1) ratio of 11.35% and a Tier I Risk-Based Capital ratio of 11.78% (Q1 2025) are well above regulatory thresholds. These metrics, combined with a Return on Equity (ROE) of 11.37%, indicate a bank that's not just surviving but thriving. Even its debt-to-equity ratio of 7.87—though high by non-bank standards—has been trending downward since 2021, signaling a deliberate effort to de-leverage.

What's more, FHN's loan portfolio is a model of discipline. Nonperforming loans sit at 0.99% of total loans, and a 1.32% loan loss reserve ensures it's prepared for downturns. In a world where commercial real estate (CRE) is a ticking time bomb for many banks, First Horizon's exposure is manageable, with CRE loans accounting for a fraction of its total assets.

Peer Comparison: The 5.34% Outlier

FHN's 5.34% yield isn't just a number—it's a competitive edge. Regional banks like Zions Bancorporation (ZION) and BOK Financial (BOKF) offer yields around 4.10%, while the S&P 500's forward P/E of 22.3x implies earnings growth expectations that may not materialize. In contrast, FHN's low P/E of 5.88 suggests the market is pricing in risk but not discounting its income potential.

Risks and Realism

No investment is without caveats. First Horizon's dividend hasn't grown in five years, and its payout ratio—while low—has fluctuated. A recession or a spike in loan defaults could force a cut. The CRE sector's recent struggles, particularly in office real estate, remain a wildcard. However, FHN's conservative loan underwriting and robust capital buffers provide a buffer.

The Verdict: A Dividend for the Long Haul

For income-focused investors, FHN presents a compelling case. Its yield outshines most peers, its payout ratio is sustainable, and its capital ratios are among the strongest in the sector. While it's not a growth story, it's a stability story—one that becomes more valuable as interest rates stabilize and bond yields remain unattractive.

Investment Advice: Buy FHN for its defensive qualities and income potential. Hold for at least three years to balance against potential earnings volatility. Reassess annually based on CRE trends and capital ratio movements.

In a world where “safe” feels like a distant memory, First Horizon's dividend strategy is a reminder that sometimes, the best returns come from the steady, not the bold.