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First American Financial to Share More Profit, Ups Dividend

Zacks Equity Research
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First American Financial to Share More Profit, Ups Dividend

First American Financial's (FAF) 10.5% hike in quarterly dividend reflects its continued operational excellence and the long-term positive objectives of the company's business.

The board of directors of First American Financial Corporation FAF recently approved a 10.5% hike in its quarterly dividend to add shareholder value. The company will now pay a dividend of 42 cents per share compared with 38 cents paid on Jun 15, 2018. Shares gained 0.02% in the last trading session, reflecting investors’ appreciation of the company’s shareholder-friendly move.
Shareholders of record as of Sep 10 will receive the increased dividend on Sep 17. Based on the closing share price of $55.51 as of Aug 16, the raised payout represents a dividend yield of 3%, better than its industry’s average of 2.6%.

First American Financial has an impressive track of annual dividend hike. The Zacks Rank #2 (Buy) insurer’s dividend increase witnessed a 5-year CAGR (2014-2018) of 28.5%, banking on its operational efficiency.

With about 113.1 million shares outstanding at the end of the second quarter, the company has to dish out about $47.5 million quarterly or $190 million annually as dividend. This payout is backed by the company’s sturdy capital position.
The company’s initiatives are supported by its solid cash flow generation, which in turn, is driven by a consistent operational strength. The company’s cash balance as of Jun 30, 2018 was $1.2 billion (up 5.1% year over year) and cash flow from operations was $234.6 million during the first six months of 2018 (up 8.3% year over year).

Chief executive officer Dennis J. Gilmore stated that the increase in the company’s dividend instills confidence in the long-term objectives of its business. This also reflects the company’s commitment to enhance its shareholder value.
First American Financial has a strong capital management policy in place. Its commitment toward increasing dividend regularly makes the stock an attractive pick to yield-seeking investors.
Share Price Movement
Shares of First American Financial have rallied 18.6% in a year, outperforming the industry’s growth of 14.3%. Higher insurance sales, core earnings growth and an effective capital deployment are expected to drive the stock higher in the future.

Other Stocks to Consider

Investor interested in the property and casualty insurance industry can look at The Navigators Group, Inc. NAVG, NMI Holdings Inc. NMIH and Alleghany Corporation Y, each stock sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States as well as internationally. The company delivered an average four-quarter positive surprise of 19.54%.
NMI Holdings provides private mortgage guaranty insurance services in the United States. The company pulled off an average four-quarter positive surprise of 29.85%
Alleghany provides property and casualty reinsurance and insurance products in the United States and globally. The company came up with an average four-quarter beat of 26.02%.
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