Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 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 3.72%. Currently paying a dividend of $0.54 per share, the company has a dividend yield of 3.34%. In comparison, the Insurance - Property and Casualty industry's yield is 0.66%, while the S&P 500's yield is 1.65%.
In terms of dividend growth, the company's current annualized dividend of $2.16 is up 0.9% from last year. In the past five-year period, First American Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.66%. 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 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FAF expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $5.25 per share, which represents a year-over-year growth rate of 19.32%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
First American Financial Corporation (FAF) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.