Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

First American Financial in Focus

Based in Santa Ana, First American Financial (FAF Quick QuoteFAF - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -5.21%. The financial services company is currently shelling out a dividend of $0.54 per share, with a dividend yield of 3.65%. This compares to the Insurance - Property and Casualty industry's yield of 0.67% and the S&P 500's yield of 1.69%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.16 is up 0.9% from last year. Over the last 5 years, First American Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.28%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. First American Financial's current payout ratio is 49%. This means it paid out 49% of its trailing 12-month EPS as dividend.

FAF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $5.25 per share, with earnings expected to increase 19.32% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FAF is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).