First American Financial Corp's Dividend Analysis

Exploring the Sustainability and Growth of Dividends

First American Financial Corp (NYSE:FAF) recently announced a dividend of $0.53 per share, payable on June 17, 2024, with the ex-dividend date set for June 10, 2024. As investors anticipate this upcoming payment, it's crucial to delve into the company's dividend history, yield, and growth rates. This analysis, based on data from GuruFocus, aims to evaluate the sustainability and potential growth of First American Financial Corp's dividends.

What Does First American Financial Corp Do?

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First American Financial Corp is a prominent player in the financial services sector, focusing on title insurance and related services, as well as home warranty products. The company's title insurance segment covers a vast array of services including real estate insurance, property closing, escrow, and risk mitigation. The home warranty segment offers service contracts for residential systems and appliances, covering failures due to normal usage. Predominantly, First American Financial Corp's revenue is generated from the title insurance services in the United States.

First American Financial Corp's Dividend Analysis

A Glimpse at First American Financial Corp's Dividend History

Since 2010, First American Financial Corp has maintained a consistent record of quarterly dividend payments. The company's commitment to increasing dividends annually has earned it the status of a dividend achiever, a recognition given to companies that have consistently raised their dividends for at least 14 consecutive years.

First American Financial Corp's Dividend Analysis

Breaking Down First American Financial Corp's Dividend Yield and Growth

Currently, First American Financial Corp boasts a trailing dividend yield of 3.92% and a forward dividend yield of 3.94%, indicating expectations of increased dividend payments over the next year. Over the past three years, the annual dividend growth rate was 5.70%, which escalated to 6.10% over a five-year period, and an impressive 13.50% over the past decade. As of today, the 5-year yield on cost for First American Financial Corp's stock is approximately 5.26%.

First American Financial Corp's Dividend Analysis

The Sustainability Question: Payout Ratio and Profitability

The dividend payout ratio, which currently stands at 0.85, is a critical metric in assessing dividend sustainability. This ratio suggests that First American Financial Corp retains a significant portion of its earnings, which supports future growth and stability. Additionally, the company's profitability rank of 7 out of 10, as well as its consistent positive net income over the past decade, further reinforces its financial health.

Growth Metrics: The Future Outlook

First American Financial Corp's growth rank of 7 out of 10 indicates a promising growth trajectory compared to its peers. However, its 3-year revenue growth rate of -2.90% and a 3-year EPS growth rate of -16.50% suggest challenges in revenue and earnings growth. Moreover, the 5-year EBITDA growth rate of -7.60% also indicates potential areas for improvement in operational efficiency.

Conclusion: Evaluating Dividend Prospects

In conclusion, while First American Financial Corp demonstrates a strong historical commitment to increasing dividends, the sustainability of future dividends will largely depend on its ability to reverse the negative trends in revenue and earnings growth. Investors should closely monitor these growth metrics alongside the payout ratio and profitability to make informed decisions. For those seeking high-dividend yield stocks, consider using the High Dividend Yield Screener available to GuruFocus Premium users.

This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.

This article first appeared on GuruFocus.