Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO) has announced that it will pay a dividend of US$0.18 per share on the 20th of October. The dividend yield will be 3.0% based on this payment which is still above the industry average.
Farmers & Merchants Bancorp's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, Farmers & Merchants Bancorp's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 11.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.
Farmers & Merchants Bancorp Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$0.38 in 2011 to the most recent annual payment of US$0.68. This works out to be a compound annual growth rate (CAGR) of approximately 6.0% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Farmers & Merchants Bancorp Could Grow Its Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Farmers & Merchants Bancorp has grown earnings per share at 9.9% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Farmers & Merchants Bancorp's prospects of growing its dividend payments in the future.
Farmers & Merchants Bancorp Looks Like A Great Dividend Stock
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Farmers & Merchants Bancorp that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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