First American (FAF) Rewards Shareholders With 2% Dividend Hike
First American Financial Corporation’s FAF board of directors has approved a 2% hike in its quarterly dividend to return more profits to stockholders. The insurer will pay out 53 cents per share compared with 52 cents per share paid in May 2023.
Prior to this, the title insurer had raised the quarterly dividend by 2% last August. Based on the stock’s Aug 22 closing price of $59.14, the new dividend will yield 3.5%, which is better than the industry average of 0.3%. The payout ratio of 43.2 also compares favorably with the industry average of 9.3. 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, FAF has a solid track record of dividend increase, with the metric witnessing an eight-year (2016-2023) CAGR of 9.3%.
Besides regular dividend hikes, this provider of title insurance, settlement services and risk solutions remains committed to returning excess cash to shareholders through share repurchases. First American also engages in share buybacks. The board has increased the size of its share repurchase plan from $300 million to $600 million. FAF bought back shares worth $45 million in the first half of 2023. The title insurer maintains a stock repurchase plan with authorization up to $400 million, of which $241.2 million remained as of Jun 30, 2023.
The dividend hike and increase in repurchase authorization reflect the insurer’s strong financial condition, liquidity and long-standing commitment to return capital to stockholders.
First American enjoys a strong liquidity position to enhance operating leverage. Its strong liquidity not only mitigates balance sheet risks but also paves the way for accelerated capital deployment.
As of Jun 30, 2023, the holding company’s sources of liquidity included $67.6 million of cash and cash equivalents and $900 million available on the company’s revolving credit facility. Management believes that liquidity at the holding company is sufficient to satisfy anticipated cash requirements and obligations for at least next 12 months. Cash flow from operations was $176.7 million in the first half of 2023.
Return on equity, a profitability measure of how efficiently a company utilizes its shareholders’ money, was 10.7% in the trailing 12 months, better than the industry average of 6.7%.
Robust operational performance, solid investment performance and strong capital management are likely to help FAF in sustaining the dividend streak.
Shares of this Zacks Rank #3 (Hold) title insurer have gained 13% in the year-to-date period, outperforming the industry’s increase of 8.5%. FAF’s policy of ramping up growth and capital position should help the stock retain the momentum.
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Stocks to Consider
Some better-ranked stocks from the property and casualty insurance industry are Arch Capital Group Ltd. ACGL, Axis Capital Holdings Limited AXS and Kinsale Capital Group, Inc. KNSL. While Arch Capital and Axis Capital sport a Zacks Rank #1 (Strong Buy) each, Kinsale Capital carries Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arch Capital has a solid track record of beating earnings estimates in each of the last trailing four quarters, the average being 26.83%. In the past year, ACGL has gained 18.8%.
The Zacks Consensus Estimate for ACGL’s 2023 and 2024 earnings per share is pegged at $6.58 and $7.25, indicating a year-over-year increase of 35.1% and 10.2%, respectively.
Axis Capital has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 9.75%. In the past year, AXS has lost 0.2%.
The Zacks Consensus Estimate for AXS’ 2023 and 2024 earnings per share is pegged at $8.18 and $9.17, indicating a year-over-year increase of 40.7% and 12.1%, respectively.
Kinsale Capital beat estimates in each of the last four quarters, the average being 14.88%. In the past year, KNSL has gained 42.1%.
The Zacks Consensus Estimate for 2023 and 2024 has moved 3.3% and 3.1% north, respectively, in the past seven days, reflecting analysts’ optimism.
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