The board of directors of First American Financial Corporation (FAF Quick QuoteFAF - Free Report) approved a 31% hike in the company’s dividend. The company will now pay a quarterly dividend of 34 cents, up from 26 cents paid in Jun 2016. Shares gained 2.2% in yesterday’s trading session reflecting investor optimism over the company’s effective capital deployment.  

The meatier dividend will be paid out on Sep 15, 2016 to shareholders of record on Sep 8. Based on yesterday’s closing price of $41.71, the annualized dividend of $1.36 per share currently has a yield of 3.30%. This compares favorably with the industry yield of 2.84%.

First American Financial has a solid track of increasing dividend each year. Over the last five years, dividend has grown at CAGR of 41.5%. The latest hike marks the second increase this year. In January, the board of directors approved a 4% increase the company’s dividend. This bears testimony to the sustained solid operational performance by the company that leads to its healthy capital position. This Zacks Rank #2 (Buy) property and casualty insurer outperformed expectations in each of the last three quarters, with an average earnings beat of 15.2%.

With about 111 million shares outstanding at Jun 2016 end, the company has to dish out about $151 million annually or $40 million quarterly for its dividend payout. Its solid financial position should support the new payout.

The Zacks Consensus Estimate has been rising following the solid second-quarter performance. The same increased 4% to $2.97 for 2016 and 2.4% to $3.03 for 2017. We expect the Zacks Consensus Estimate to move further north as analysts pull up their estimates to incorporate the impact of the dividend hike.

FIRST AMER FINL Price

 

FIRST AMER FINL Price | FIRST AMER FINL Quote

Several other insurers also recently rewarded their shareholders with a dividend hike. American Financial Group, Inc. (AFG Quick QuoteAFG - Free Report) hiked its quarterly dividend by 12% while Primerica, Inc. (PRI Quick QuotePRI - Free Report) increased its payout by 5.9%.

Another Stock to Consider

Investors interested in the property and casualty industry can also look at Allied World Assurance Company Holdings, AG (AWH Quick QuoteAWH - Free Report) , sporting Zacks Rank #1 (Strong Buy).

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