First American (FAF) Rewards Shareholders With Dividend Hike
First American's (FAF) recent dividend hike of 11% reflects its intention to enhance shareholders' value supported by its strong financial position.
In its concerted efforts to enhance shareholder value, the board of directors of First American Financial Corporation FAF approved a 11% hike in its dividend. With this, the payout now stands at 51 cents per share compared with the earlier payout of 46 cents per share.
Prior to this, the company had raised quarterly dividend by 5% to 46 cents per share last November.
Based on the stock's Aug 24 closing price of $69.30, the new dividend will yield 2.7%, better than the industry average of 0.4%. This makes First American an attractive pick for yield-seeking investors. Shareholders of record on Sep 8 will receive the increased dividend on Sep 15.
Historically, it boasts a consistent increase in dividends with the metric witnessing an eight-year (2013-2021) CAGR of 19.8%.
Besides regular dividend hike, First American remains committed to return excess cash to shareholders through share repurchases. The board has increased the size of the its share repurchase plan from $300 million to $600 million. With the increase in authorization, the company has $472 million remaining under the share repurchase authorization.
The dividend hike and increase of repurchase authorization reflects the insurer’s strong financial condition, liquidity, and long-standing commitment to return capital to stockholders.
First American enjoys strong liquidity position to enhance operating leverage. Strong liquidity not only mitigates balance sheet risks but also paves the way for an accelerated capital deployment. As of Jun 30, 2021, cash and cash equivalents surged 74.3% from fourth-quarter 2020 end level. Moreover, cash flow from operations increased 29.6% year over year in the first half of 2021. Furthermore, $700.0 million is available on its revolving credit facility.
Also, return on equity (ROE), a profitability measure of how efficiently a company utilizes its shareholders money, was 16.2% in the trailing twelve months, better than the industry average of 5.7%.
Robust operational performance, a solid investment performance and strong capital management are likely to help the company in sustaining the dividend streak.
Recently, two other insurers, American Financial Group, Inc. AFG and W.R. Berkley Corporation WRB undertook similar measures. While American Financial has hiked its dividend by 12%, W.R. Berkley approved an 8% hike in its quarterly dividend.
Shares of this provider of title insurance, settlement services and risk solutions have gained 34.3% year to date, outperforming the industry’s increase of 20%. Moreover, the company’s policy of ramping up growth and capital position should continue to drive share price higher.
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The company presently carries Zacks Rank #2 (Buy).
Another Stock to Consider
Another top-ranked stock from the insurance industry is Cincinnati Financial Corporation CINF, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Cincinnati Financial surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 36.01%.
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W.R. Berkley Corporation (WRB): Free Stock Analysis Report
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First American Financial Corporation (FAF): Free Stock Analysis Report
American Financial Group, Inc. (AFG): Free Stock Analysis Report
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