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First American (FAF) Shares More Profits, Ups Dividend by 2%

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First American Financial Corporation’s (FAF - Free Report) board of directors has approved a 2% hike in its quarterly dividend to return more profits to stockholders. The insurer will pay out 52 cents per share compared with 51 cents per share paid in May 2022.

Prior to this, the title insurer had raised the quarterly dividend by 11% last August. Based on the stock’s Aug 23, 2022 closing price of $56.72, the new dividend will yield 3.6%, better than the industry average of 0.4%. This makes First American an attractive pick for yield-seeking investors. Shareholders of record on Sep 8 will receive the increased dividend on Sep 15.

Historically, First American has a solid track record of dividend increase, with the metric witnessing an eight-year (2015-2022) CAGR of 9.6%.

Besides regular dividend hikes, this provider of title insurance, settlement services and risk solutions remains committed to returning excess cash to shareholders through share repurchases. In June 2022, FAF’s board of directors approved a new share repurchase plan, which authorizes the repurchase of up to $400 million of shares, of which $392 million remained as of Jun 30, 2022.

The dividend hike and increase in repurchase authorization reflect the insurer’s strong financial condition, liquidity, and long-standing commitment to return capital to stockholders.

First American enjoys a strong liquidity position to enhance operating leverage. Its strong liquidity not only mitigates balance sheet risks but also paves the way for accelerated capital deployment.

First American exited the second quarter of 2022 with cash and cash equivalents of $1.7 billion, up 42% from 2021 end and has $700 million available on its revolving credit facility. Cash flow from operations was $229 million in the first half of 2022.

Return on equity (ROE), a profitability measure of how efficiently a company utilizes its shareholders money, was 15.4% in the trailing twelve months, better than the industry average of 6.4%.

Robust operational performance, solid investment performance and strong capital management are likely to help the insurer in sustaining the dividend streak.

Shares of this Zacks Rank #4 (Sell) title insurer have lost 18.6% in the past year, compared with the industry’s decrease of 6.7%. FAF’s policy of ramping up growth and capital position should help the stock bounce back.

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In August 2022, three other insurers, American Financial Group, Inc. (AFG - Free Report) , Old Republic International Corporation (ORI - Free Report) and Primerica, Inc. (PRI - Free Report) undertook similar measures.

American Financial Group board approved a hike in its quarterly dividend of 12.5%.

AFG increased its dividend nearly four times in a decade. Banking on the solid capital level, the board of directors of American Financial believes returning excess capital to shareholders in the form of dividends is an important and effective component of its capital management strategy.

The board of directors of Old Republic International approved a special, one-time cash dividend of $1 per share as well as a $450 million share buyback program.

A solid financial foundation and operational performance should continue to support Old Republic International to engage in shareholder-friendly moves. The third largest title insurer in the country has been strengthening its balance sheet with improved cash balance and a low leverage ratio. Banking on its strong capital position, ORI increased dividends for 41 straight years and paid out dividends for the last 81 years.

Primerica’s board of directors authorized a $50 million increase to its share buyback program to return more value to investors. The latest authorization will allow PRI to spend up to $375 million to repurchase its common stock through the year.

The size of PRI’s business as well as the prudent use of reinsurance ensures predictable earnings and supports capital deployment strategy. Primerica has also raised dividends 10 times in the last nine years. A compelling portfolio, strong market presence and a sturdy financial position should continue to drive Primerica.

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