Why First American Financial (faf) Is A Top Dividend Stock For Your Portfolio

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 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.

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 21.34%. Currently paying a dividend of $0.55 per share, the company has a dividend yield of 2.95%. In comparison, the Insurance - Property and Casualty industry's yield is 0.9%, while the S&P 500's yield is 1.32%.

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 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.

FAF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2026 is $7.11 per share, with earnings expected to increase 17.52% from the year ago period.

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 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).

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This article originally published on Zacks Investment Research (zacks.com).

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