Farmers & Merchants Bancorp's (NASDAQ:FMAO) Shareholders Will Receive A Bigger Dividend Than Last Year
The board of Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO) has announced that it will be increasing its dividend by 17% on the 20th of October to $0.21, up from last year's comparable payment of $0.18. Based on this payment, the dividend yield for the company will be 2.7%, which is fairly typical for the industry.
Check out our latest analysis for Farmers & Merchants Bancorp
Farmers & Merchants Bancorp's Payment Expected To Have Solid Earnings Coverage
Unless the payments are sustainable, the dividend yield doesn't mean too much.
Farmers & Merchants Bancorp has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Farmers & Merchants Bancorp's payout ratio of 32% is a good sign as this means that earnings decently cover dividends.
The next year is set to see EPS grow by 5.7%. If the dividend continues along recent trends, we estimate the future 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 an extended history of paying stable dividends. Since 2012, the annual payment back then was $0.38, compared to the most recent full-year payment of $0.76. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. 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. Farmers & Merchants Bancorp has seen EPS rising for the last five years, at 12% per annum. 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 should note that Farmers & Merchants Bancorp has issued stock equal to 17% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
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. 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Farmers & Merchants Bancorp that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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