First Horizon Holds Steady on Dividend Amid Economic Uncertainty

First Horizon National Corporation (NYSE: FHN) has announced it will maintain its quarterly dividend at $0.15 per share, payable July 1 to shareholders of record as of June 13. The decision underscores management’s confidence in the bank’s financial resilience amid a challenging economic environment, even as some regional peers face pressure to cut payouts. For investors, the move raises questions about First Horizon’s strategy, its valuation, and the broader implications for its stock.

A Dividend Signal of Strength
By keeping its dividend unchanged, First Horizon is signaling to investors that it believes its capital position and earnings are robust enough to sustain current payouts. The $0.15 quarterly dividend translates to an annual yield of approximately 1.8% based on recent stock prices, competitive with peers such as Truist Financial (TFC) and Regions Financial (RF). A key factor supporting this decision is the bank’s strong capital ratios, with a Tier 1 common equity ratio of 11.4% as of March 31, comfortably above regulatory minimums.

Financial Health and Growth Drivers
First Horizon’s decision is also rooted in its recent financial performance. First-quarter 2024 earnings showed net income rose 12% year-over-year to $237 million, driven by a 14% increase in net interest income. Loan growth of 6% annualized, fueled by commercial and consumer lending, suggests the bank is benefiting from a robust regional economy. Additionally, nonperforming assets remain low at 0.27% of total loans, indicating minimal credit risk.

However, the dividend decision comes amid broader sector challenges. Regional banks have faced headwinds from rising interest rates, which can strain loan demand and deposit costs. First Horizon has mitigated some of these risks through its focus on core markets in the Southeast and Midwest, where its branch network provides a competitive edge over larger national banks.

Valuation and Investor Considerations
First Horizon’s stock has underperformed the broader market in recent quarters, down approximately 10% year-to-date compared to the S&P 500’s flat performance. This creates a valuation opportunity for income-focused investors, with the stock trading at just 10.5 times trailing 12-month earnings—a discount to its five-year average of 12.3.

Yet, risks remain. A potential recession or prolonged period of inverted yield curves (where short-term rates exceed long-term rates) could compress net interest margins, a key profit driver for banks. Additionally, competition for deposits in a high-rate environment may pressure cost structures.

Conclusion: A Conservative Play in an Uncertain Landscape
First Horizon’s decision to hold its dividend steady reflects a cautious yet confident approach to capital allocation. With solid earnings growth, manageable credit risks, and a dividend yield that compares favorably to peers, the bank appears well-positioned to navigate current economic conditions.

Investors should monitor two key metrics: First Horizon’s net interest margin, which stood at 3.37% in Q1 2024, and its loan growth trajectory. If margins hold steady or expand while loan demand remains strong, the stock could outperform. Conversely, a drop in loan growth or a surge in deposit costs could pressure earnings and the dividend sustainability.

In the near term, First Horizon’s stock offers a blend of income and moderate growth potential. For long-term investors seeking stability in the banking sector, the bank’s disciplined approach and regional focus make it a compelling choice—provided the broader economy avoids a sharp downturn.

Ultimately, the dividend decision underscores First Horizon’s commitment to balancing shareholder returns with prudent risk management. In an environment where uncertainty reigns, such stability could prove increasingly valuable.