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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

First American Financial (FAF) is headquartered in Santa Ana, and is in the Finance sector. The stock has seen a price change of 8.35% since the start of the year. The financial services company is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 3.3% compared to the Insurance - Property and Casualty industry's yield of 0.56% and the S&P 500's yield of 1.46%.

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 36%, meaning it paid out 36% 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 $6.35 per share, with earnings expected to increase 4.96% from the year ago period.

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 must be conscious 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 also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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First American Financial Corporation (FAF): Free Stock Analysis Report

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

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