Stock Analysis

Farmers & Merchants Bancorp's (NASDAQ:FMAO) Dividend Will Be Increased To US$0.19

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The board of Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO) has announced that it will be increasing its dividend on the 20th of January to US$0.19. The announced payment will take the dividend yield to 2.3%, which is in line with the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Farmers & Merchants Bancorp's stock price has increased by 38% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Farmers & Merchants Bancorp

Farmers & Merchants Bancorp's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Farmers & Merchants Bancorp's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 4.5%. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

NasdaqCM:FMAO Historic Dividend December 23rd 2021

Farmers & Merchants Bancorp Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was US$0.38 in 2011, and the most recent fiscal year payment was US$0.76. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% 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.

We Could See Farmers & Merchants Bancorp's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. Farmers & Merchants Bancorp has impressed us by growing EPS at 7.2% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We'd also point out that Farmers & Merchants Bancorp has issued stock equal to 18% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Farmers & Merchants Bancorp Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Farmers & Merchants Bancorp is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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 instance, we've picked out 2 warning signs for Farmers & Merchants Bancorp that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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About NasdaqCM:FMAO

Farmers & Merchants Bancorp

Farmers & Merchants Bancorp, Inc. operates as the bank holding company for The Farmers & Merchants State Bank that provides commercial banking services to individuals and small businesses in northwest Ohio and northeast Indiana.

Flawless balance sheet with solid track record and pays a dividend.