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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 30th of March in order to receive the dividend, which the company will pay on the 20th of April.
Farmers & Merchants Bancorp's upcoming dividend is US$0.16 a share, following on from the last 12 months, when the company distributed a total of US$0.64 per share to shareholders. Last year's total dividend payments show that Farmers & Merchants Bancorp has a trailing yield of 2.5% on the current share price of $26.08. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Farmers & Merchants Bancorp's payout ratio is modest, at just 37% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Farmers & Merchants Bancorp earnings per share are up 9.7% per annum over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Farmers & Merchants Bancorp has lifted its dividend by approximately 5.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is Farmers & Merchants Bancorp worth buying for its dividend? Farmers & Merchants Bancorp has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. We think this is a pretty attractive combination, and would be interested in investigating Farmers & Merchants Bancorp more closely.
On that note, you'll want to research what risks Farmers & Merchants Bancorp is facing. Our analysis shows 3 warning signs for Farmers & Merchants Bancorp that we strongly recommend you have a look at before investing in the company.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.