Shareholders to Gain More at First American Financial - Analyst Blog

Shares of First American Financial Corporation FAF gained 6.3% to close at $27.86 yesterday after the property and casualty insurer announced its plans to hike its dividend and increase its share repurchase authorization.

In its consistent effort to share more profit with the shareholders, the board of directors of the company hiked its dividend by 100% to 24 cents per share.

Riding on the strength of its strong financial capacity that in turn, is supported by a solid operational performance, the board decided to double its payout. The aforesaid raise follows a 50% hike in dividend approved on Oct 25, 2012.
 
The increased dividend will be paid on Jun 16, 2014 to shareholders of record as of Jun 9, 2014.

Based on approximately 107.97 million shares outstanding as of Dec 31, 2013, First American Financial will have to dish out roughly $104 million annually in dividend payment.

Based on yesterday's closing price, First American Financial's dividend currently yields 3.42%, better than the industry average of 2.10%.

In addition to the dividend hike, the board of directors also called for an increase in the company's share buyback authorization in an effort to enhance shareholders' value through lowering of the share count. First American Financial increased the share repurchase authorization by $100 million to $250 million. Following the new approval, the company will have $182.9 million remaining under its authorization.

First American Financial presently carries a Zacks Rank #3 (Hold). We expect analysts to revise estimates upward and in turn affect the Zacks Rank positively, following the news of the dividend increase and the new share buyback approval. The stock witnessed no earnings momentum in the last 7 days.

Several insurers are treading the same path as First American Financial by announcing dividend hikes and/or share repurchases. These strategies help retain investor confidence as well as attract new investors. Recently, XL Group plc XL hiked its quarterly dividend by 14.3% and approved a $1 billion buyback program. AmTrust Financial Services, Inc. AFSI increased its dividend by 43% and sanctioned a $150 million buyback program. Likewise, FBL Financial Group Inc. FFG raised its dividend by 133% and approved a $50 million share repurchase program.