All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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
Headquartered in Santa Ana, First American Financial (FAF - Free Report) is a Finance stock that has seen a price change of 26.84% so far this year. Currently paying a dividend of $0.42 per share, the company has a dividend yield of 2.97%. In comparison, the Insurance - Property and Casualty industry's yield is 1.53%, while the S&P 500's yield is 1.88%.
In terms of dividend growth, the company's current annualized dividend of $1.68 is up 5% 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 15.33%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. First American Financial's current payout ratio is 36%, meaning it paid out 36% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FAF expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.69 per share, with earnings expected to increase 11.93% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FAF presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).