Farmers & Merchants Bancorp (NASDAQ:FMAO) Has Announced That It Will Be Increasing Its Dividend To $0.21

Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO) will increase its dividend on the 20th of October to $0.21, which is 17% higher than last year's payment from the same period of $0.18. Based on this payment, the dividend yield for the company will be 2.7%, which is fairly typical for the industry.

View our latest analysis for Farmers & Merchants Bancorp

Farmers & Merchants Bancorp's Payment Expected To Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Farmers & Merchants Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Farmers & Merchants Bancorp's last earnings report, the payout ratio is at a decent 32%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next year, EPS is forecast to expand by 5.7%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 35% by next year, which is in a pretty sustainable range.

Farmers & Merchants Bancorp Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.38 in 2012 to the most recent total annual payment of $0.76. This means that it has been growing its distributions at 7.2% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Farmers & Merchants Bancorp has grown earnings per share at 12% per year over the past five years. Farmers & Merchants Bancorp definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We should note that Farmers & Merchants Bancorp has issued stock equal to 17% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

We Really Like Farmers & Merchants Bancorp's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Farmers & Merchants Bancorp that investors should know about before committing capital to this stock. Is Farmers & Merchants Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.