First American Financial: Undervalued

First American Financial Corp (FAF)  Based in Santa Ana, California, founded in 1889, First American Financial Corporation provides Title Insurance and Specialty Insurance on residential and commercial property, closing and/or escrow services; products, appraisals, lien release, document custodial services, as well as banking, trust, and wealth management services. It has ‘Premier‘ status being in the upper percentiles of this month’s stock universe. FAF has company increased dividends for 12 years.  It’s a Growth & Income stock.

VALUATION: The price at time of analysis was $65.75, which is Undervalued. A fair price would be around $140.38. Our ‘Value Rating’ for First American Financial Corp is 5 out of 5.0, meaning that both PS and PE strongly indicate value, compared to other dividend stocks available.

TIMING: Currently, FAF has a ‘Medium+ ‘Buy’ Signal‘ based on a comparison of current to historical yield and PE values. We consider FAF to be on sale!

GROWTH:  FAF’s 5-year average dividend growth rate is 9.2%, slightly below the dividend universe average of 9.7%. Free cash flow has grown at an average rate of 24.2% per year for the last 5 years versus the dividend universe at 6.7%, so FAF is performing very well.

INCOME: FAF’s current dividend yield is 2.94%, nicely above this month’s dividend stock average yield of 2.35%. 

SAFETY: We use the Dividend Coverage Ratio to measure the dividend’s safety – higher is better. FAF has a DCR of 4.7 which is great, well above our conservative minimum requirement of 2.0. The dividend is not in immediate danger of being cut, barring other issues. 

QUALITY: Our quality formula gives FAF a ‘Quality Rating’ of 3.8 (out of 5), versus the average of 2.5 for this month’s dividend universe.

TOTAL RETURN: Over the last 15 years, the compound annual growth rate for an investment in First American Financial Corp was 20.3% per year with dividends reinvested, versus the S&P500 Total Return of around 9.83% per year for the same time period. As you can see, FAF is doing better than the market with dividends reinvested.

Overall, compared to our universe of dividend stocks, we rate First American Financial Corp a ‘A+.’

What is your opinion of FAF? Will you be adding it to your portfolio? Please comment!

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