Assessing Stewart Information Services' (STC) Dividend Sustainability Amid Growth and Buyback Strategy

In an era of economic uncertainty, investors increasingly seek companies that balance growth with disciplined capital returns. Stewart Information Services (NYSE: STC) has emerged as a compelling case study in this regard, having recently raised its annual dividend to $2.10 per share while simultaneously authorizing a $50 million share repurchase program. This dual approach to shareholder yield-combining dividends and buybacks-raises critical questions about sustainability, particularly in light of the company's 2025 financial performance.

Dividend Increases: A Signal of Confidence

Stewart's decision to incrementally raise its quarterly dividend from $0.50 to $0.525 per share in 2025 reflects a strategic commitment to capital returns. Such consistency is rare in today's market, where many firms prioritize reinvestment over distributions. The increase follows a 40% year-over-year surge in net income for Q3 2025, driven by a 19% revenue growth to $796.9 million and improved operational efficiency, with operating expenses declining to 44% of revenues from 47% in the prior year. These metrics suggest that Stewart's management is not merely distributing excess cash but is doing so from a position of strength.

Financial Resilience and Free Cash Flow

A critical metric for dividend sustainability is free cash flow. For Q3 2025, Stewart generated $73.73 million in free cash flow, a 110.3% year-over-year increase. This outperformance is underpinned by robust cash flow from operations ($92.6 million in Q3 2025) and disciplined capital expenditures, which totaled $9.21 million in the same period according to Q3 results. While capital spending rose 44.47% year-on-year in Q2 2025, the subsequent decline in Q3 indicates a measured approach to reinvestment. Such flexibility allows Stewart to allocate capital dynamically between growth and returns to shareholders.

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Buybacks: Complementing Dividends

The $50 million share repurchase program, announced alongside the dividend hike, extends Stewart's three-year horizon for buybacks. This initiative aligns with broader industry trends, where buybacks are increasingly viewed as a tax-efficient means of returning capital. Notably, Stewart retains a remaining $156 million in authorized buyback capacity from a prior program, suggesting a long-term commitment to reducing shares outstanding. When combined with dividend payments, this strategy enhances per-share value while mitigating dilution risks.

Risk Considerations and Debt Metrics

Despite these positives, investors must scrutinize Stewart's leverage profile. While the company's 2025 annual report is not yet public, Q3 results indicate no material debt increases. However, the absence of a full-year 10-K filing-a gap that persists since the 2022 report-introduces some opacity. A prudent approach would involve monitoring free cash flow coverage of dividends, which stood at a healthy 140% in Q3 2025 (assuming $73.73 million in free cash flow and $52.5 million in annual dividend payments). Sustaining this ratio will depend on maintaining operational efficiency and avoiding overextension in capital expenditures.

Conclusion: A Model of Prudent Capital Allocation

Stewart Information Services' 2025 performance underscores its ability to balance growth and shareholder returns. By leveraging strong free cash flow generation, operational discipline, and a dual strategy of dividends and buybacks, the company has positioned itself as a resilient player in the title and real estate services sector. For income-focused investors, STC offers a rare combination of yield stability and growth potential-provided management continues to prioritize prudence over exuberance.