Head to Head Survey: AON (NYSE:AON) and First American Financial (NYSE:FAF)

First American Financial (NYSE:FAF) and AON (NYSE:AON) are both finance companies, but which is the better investment? We will contrast the two companies based on the strength of their institutional ownership, dividends, earnings, risk, analyst recommendations, valuation and profitability.

Dividends

First American Financial pays an annual dividend of $2.44 per share and has a dividend yield of 4.0%. AON pays an annual dividend of $3.28 per share and has a dividend yield of 1.2%. First American Financial pays out 33.8% of its earnings in the form of a dividend. AON pays out 18.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. First American Financial has increased its dividend for 15 consecutive years. First American Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a summary of current ratings and target prices for First American Financial and AON, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First American Financial	0	1	7	0	2.88
AON	1	6	12	0	2.58

First American Financial presently has a consensus price target of $84.60, indicating a potential upside of 38.81%. AON has a consensus price target of $397.47, indicating a potential upside of 43.34%. Given AON’s higher probable upside, analysts clearly believe AON is more favorable than First American Financial.

Volatility & Risk

First American Financial has a beta of 1.21, indicating that its share price is 21% more volatile than the S&P 500. Comparatively, AON has a beta of 0.66, indicating that its share price is 34% less volatile than the S&P 500.

Earnings & Valuation

This table compares First American Financial and AON”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First American Financial	$7.45 billion	0.84	$621.80 million	$7.22	8.44
AON	$17.18 billion	3.42	$3.69 billion	$18.14	15.29

AON has higher revenue and earnings than First American Financial. First American Financial is trading at a lower price-to-earnings ratio than AON, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares First American Financial and AON’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First American Financial	9.33%	13.31%	4.14%
AON	22.27%	42.13%	7.57%

Insider and Institutional Ownership

89.0% of First American Financial shares are held by institutional investors. Comparatively, 86.1% of AON shares are held by institutional investors. 3.5% of First American Financial shares are held by company insiders. Comparatively, 1.0% of AON shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Summary

AON beats First American Financial on 11 of the 17 factors compared between the two stocks.

About First American Financial

First American Financial Corporation, through its subsidiaries, provides financial services. It operates through Title Insurance and Services, and Home Warranty segments. The Title Insurance and Services segment issues title insurance policies on residential and commercial property, as well as offers related products and services internationally. This segment also provides closing and/or escrow services; products, services, and solutions to mitigate risk or otherwise facilitate real estate transactions; and appraisals and other valuation-related products and services, lien release and document custodial services, warehouse lending services, default-related products and services, document generation services, mortgage loans subservicing, and related products and services, as well as banking, trust, and wealth management services. In addition, it accommodates tax-deferred exchanges of real estate; and maintains, manages, and provides access to title plant data and records. This segment offers its products through a network of direct operations and agents in various states and in the District of Columbia, as well as in Canada, the United Kingdom, Australia, New Zealand, South Korea, and internationally. The Home Warranty segment provides home warranty products, including residential service contracts that cover residential systems, such as heating and air conditioning systems, and various appliances against failures that occur as the result of normal usage during the coverage period. This segment operates in various states and the District of Columbia. The company was founded in 1889 and is headquartered in Santa Ana, California.

About AON

Aon Plc engages in the provision of risk, health, and wealth solutions. It focuses on risk capital including claim management, reinsurance, risk analysis, management, retention, and transfer; and human capital involving analytics, health and benefits, investments, pensions and retirement, talent and rewards, and workplace wellbeing. The company was founded in 1982 and is headquartered in Dublin, Ireland.