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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Based in Santa Ana, First American Financial (FAF) is in the Finance sector, and so far this year, shares have seen a price change of 11.3%. The financial services company is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 3.22% compared to the Insurance - Property and Casualty industry's yield of 0.78% and the S&P 500's yield of 1.43%.
Looking at dividend growth, the company's current annualized dividend of $2.20 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 3.78%. 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 34%, meaning it paid out 34% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FAF for this fiscal year. The Zacks Consensus Estimate for 2026 is $6.72 per share, representing a year-over-year earnings growth rate of 11.07%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that FAF is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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First American Financial Corporation (FAF): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).