Back to top

This is Why First American Financial (FAF) is a Great Dividend Stock

Read MoreHide Full Article

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.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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 - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 24.98%. The financial services company is currently shelling out a dividend of $0.42 per share, with a dividend yield of 3.01%. This compares to the Insurance - Property and Casualty industry's yield of 1.33% and the S&P 500's yield of 1.92%.

Taking a look at the company's dividend growth, its 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%. 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 36%. This means it paid out 36% of its trailing 12-month EPS as dividend.

FAF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.74 per share, which represents a year-over-year growth rate of 13.13%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


First American Financial Corporation (FAF) - free report >>

Published in