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.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 -9.66%. The financial services company is currently shelling out a dividend of $0.54 per share, with a dividend yield of 3.83%. This compares to the Insurance - Property and Casualty industry's yield of 0.43% and the S&P 500's yield of 1.53%.

In terms of dividend growth, the company's current annualized dividend of $2.16 is up 0.9% from last year. First American Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.28%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, First American Financial's payout ratio is 45%, which means it paid out 45% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for FAF for this fiscal year. The Zacks Consensus Estimate for 2025 is $5.10 per share, which represents a year-over-year growth rate of 15.91%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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).