First American Shares Bounty From Real Estate Rebound


Title insurerFirst American Financial ( FAF ) is sharing the bounty it's received from the real estate rebound.

The company on Oct. 25 boosted its quarterly dividend by 50% to 12 cents a share. That brought the annualized dividend yield to 2%, roughly in line with the S&P 500's average. The latest dividend is payable Dec. 31 to shareholders of record Dec. 14.

Meanwhile, the stock has soared 87% this year, far outpacing the S&P's 12% gain.

First American provides title insurance for commercial and residential properties. Profit for the latest quarter soared 375%, the third straight triple-digit increase. It was driven primarily by a boom in mortgage loan refinancing and strength in its commercial business. Revenue for the quarter climbed 25%, accelerating for the second straight quarter.

Yet the recent rebound in profit and revenue partly reflects easy comparisons to year-ago levels, when profit weakened.

The stock has a best-possible 99 Earnings Per Share Rating, but its three-year Earnings Stability Factor is a worst-possible 99. The discrepancy reflects the company's volatile earnings history amid the housing sector's wild ride in recent years.

First American cited "increasing confidence in the outlook for the housing and mortgage markets" as a reason for raising its dividend.

So it's important to see if the company can maintain brisk profit growth.

The stock is currently rising along with its 50-day moving average, sketching a flat base with a possible buy point at 25.08.

Institutional investors have boosted their holdings of the stock for two straight quarters.

But the stock's Accumulation-Distribution Rating has fallen to a neutral C, and the up-down volume ratio has dipped below the neutral 1.0, indicating that big funds may be turning cool to the stock.

Furthermore, First American's Insurance-Property/Casualty/Title industry group has fallen from No. 26 six weeks ago to a lowly 118th place out of 197 in Friday's IBD. And the insurance sector was ranked just 19th out of 33.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: FAF

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