Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

First American Financial in Focus

Based in Santa Ana, First American Financial (FAF) is in the Finance sector, and so far this year, shares have seen a price change of 0.38%. Currently paying a dividend of $0.54 per share, the company has a dividend yield of 3.45%. In comparison, the Insurance - Property and Casualty industry's yield is 0.52%, while the S&P 500's yield is 1.53%.

Looking at dividend growth, the company's current annualized dividend of $2.16 is up 0.9% from last year. In the past five-year period, First American Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.66%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, First American Financial's payout ratio is 58%, which means it paid out 58% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, FAF expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $5.45 per share, which represents a year-over-year growth rate of 23.86%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FAF presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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