1st Source (SRCE) Builds On Dividend Growth, Is The Stock Still Cheap?

Recent attention on 1st Source (SRCE) stems from its dividend track record, with five payout increases in five years and a current yield of 2.15% on a US$0.45 quarterly distribution.

Recent share price moves tell a mixed story for 1st Source. The stock has eased over the past week and month; however, the year to date share price return of 34.58% and 1-year total shareholder return of 42.38% suggest momentum has been building over a longer horizon.

Capitalize on 1st Source's dividend and earnings story by scanning a curated 8 dividend fortresses that shares a similar focus on income and discipline.

The share price has already moved a long way for 1st Source, while dividend and earnings expectations stay in focus. Does the current valuation still leave enough upside for new buyers, or is most of the payoff now priced in?

Price-to-Earnings of 12x: Is it justified?

On a simple yardstick, 1st Source trades on a P/E of 12x, which sits slightly above both its US Banks peers and the estimated fair ratio level.

The P/E multiple compares the current share price to per share earnings and helps you gauge how much investors are willing to pay for each dollar of profit. For a lender like 1st Source, this metric often reflects expectations around future profitability, credit quality, and how stable earnings could be through different parts of the cycle.

Here, the stock looks expensive versus the broader US Banks industry, where the average P/E is 11.5x, and also screens rich relative to the fair P/E estimate of 10.6x that the SWS model points to as a level the market could move towards if sentiment cools.

Explore the SWS fair ratio for 1st Source.

Result: Price-to-Earnings of 12x (OVERVALUED)

Still, 1st Source faces clear pressure points, including any setback in credit quality and the risk that richer P/E expectations could unwind if sentiment shifts.

Find out about the key risks to this 1st Source narrative.

Another View on 1st Source’s Valuation

The P/E suggests 1st Source looks a bit rich, yet the SWS DCF model points the other way. On that cash flow approach, the shares at $84.06 trade below an estimated future cash flow value of $129.47, which implies the stock screens as undervalued.

When one method flags overvaluation and another flags a discount, the real question for you is which set of assumptions you trust more for a regional bank like this.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out 1st Source for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 32 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Questions linger after examining 1st Source's valuation signals and dividend profile, so move quickly, review the underlying data, and stress test your own thesis using the 3 key rewards.

Looking for more investment ideas beyond 1st Source?

If 1st Source has sharpened your focus on quality and income, broaden your watchlist now and pressure test your thinking against other clear, data driven opportunities.

• Spot potential income anchors by reviewing a hand picked 8 dividend fortresses that focus on durable payouts and financial resilience.
• Hunt for mispriced quality and use the 32 high quality undervalued stocks to surface candidates where fundamentals and valuation still look aligned.
• Prioritise resilience first and scan a 32 resilient stocks with low risk scores that screens for businesses with steadier financial risk profiles.

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.

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