Dividend Kings In Focus: Farmers & Merchants Bancorp

Up to date on December 4th, 2023

The Dividend Kings include firms which have raised their dividends for a minimum of 50 years in a row. Most of the firms have become big multinational companies over the many years, however not all of them.

You’ll be able to see the complete checklist of all 54 Dividend Kings right here.

We additionally created a full checklist of all Dividend Kings, together with related monetary statistics like dividend yields and price-to-earnings ratios. You’ll be able to obtain the complete checklist of Dividend Kings by clicking on the hyperlink under:

Farmers & Retailers Bancorp (FMCB) has paid uninterrupted dividends for 88 consecutive years and has raised its dividend for 58 consecutive years. And but, it has remained a comparatively small firm, buying and selling at a market capitalization of simply ~$710 million.

Regardless of its small measurement, the corporate has many issues entering into its favor, and shareholders will probably see strong returns. The inventory’s 1.8% dividend yield is barely increased than the broader market’s 1.5% yield, and there’s room for extra dividend raises down the street.

Enterprise Overview

F&M Financial institution was based in 1916. It operates 32 branches throughout California’s Central Valley and East Bay areas. F&M Financial institution is a full-service neighborhood financial institution and thus provides loans, deposits, tools leasing, and treasury administration merchandise to companies, in addition to a full vary of client banking merchandise.

Regardless of working simply 32 branches, F&M Financial institution is the 14th largest financial institution lender to agriculture within the U.S. and has considerably grown its asset base. Actually, whole property have grown by 12.5% yearly since 2012. And due to its prudent administration, F&M Financial institution exhibited exceptional resilience amid the pandemic and through earlier downturns.

In mid-October, F&M Financial institution reported (10/19/23) monetary outcomes for the third quarter of fiscal 2023. The financial institution grew its earnings-per-share 16% over the prior 12 months’s quarter, from $25.20 to $29.23. It posted 2% development of loans and deposits. Web curiosity earnings grew 6% because of an growth of web curiosity margin from 3.95% to 4.20% and development of loans. Administration stays optimistic for the foreseeable future, because the aggressive rate of interest hikes carried out by the Fed are more likely to proceed to assist a large web curiosity margin.

Administration stays optimistic for the foreseeable future, as excessive rates of interest have significantly enhanced the financial institution’s web curiosity margin. We reiterate that F&M Financial institution is likely one of the most resilient banks throughout downturns, reminiscent of the nice monetary disaster and the pandemic.

Progress Prospects

As beforehand talked about, F&M Financial institution has pursued development by way of acquisitions during the last a number of years after an extended interval of no acquisition exercise stretching again to the Eighties. It acquired Delta Nationwide Bancorp in 2016, and thus it elevated the variety of its places by 4. Furthermore, in late 2018, it acquired Financial institution of Rio Vista and thus expanded within the San Francisco East Bay Space.

F&M Financial institution has grown its earnings per share at a 13.5% common annual price since 2013. With the surge of rates of interest to multi-year highs, F&M Financial institution has grown its earnings to an all-time excessive stage this 12 months.

Typically, increased rates of interest are a tailwind for banks and people with excessive quantities of property that subsequently earn excessive returns. Furthermore, when rates of interest are excessive, the unfold between banks’ lending price and borrowing price will increase and thus expands their web curiosity margin, which is a key element of their earnings. F&M has saved rising its web curiosity margin this 12 months.

General, we count on F&M Financial institution to develop its earnings per share by roughly 5% per 12 months over the subsequent 5 years, because of the constant development of its asset and mortgage portfolios, and a attainable enhance within the variety of its bodily places.

Aggressive Benefits & Recession Efficiency

F&M Financial institution just isn’t an enormous financial institution — the corporate’s market cap is roughly $740 million. However, the financial institution has been a strong performer for a really very long time, and it remained steady over the past monetary disaster.

F&M Financial institution’s web earnings declined minimally throughout the 2008-2009 recession, with income dropping by about ten p.c. That significantly contrasts with the efficiency of most different banks throughout that point. Earnings-per-share throughout the Nice Recession are under:

2007 earnings-per-share of $28.05
2008 earnings-per-share of $28.69 (2.3% enhance)
2009 earnings-per-share of $25.57 (11% decline)
2010 earnings-per-share of $27.05 (5.8% enhance)

Main banks suffered earnings declines of 80% or much more throughout the nice monetary disaster. F&M Financial institution, with its give attention to neighborhood banking and never on extra speculative, riskier companies, has been a a lot safer funding throughout these troubled instances.

As F&M Financial institution has not made any modifications to its enterprise mannequin since then, it’s nonetheless exceptionally resilient to recessions, a minimum of relative to most banks. The financial institution presently has a tier 1 capital ratio of 12.7%, which leads to the regulatory classification of “properly capitalized” and has extraordinarily few non-performing loans. It’s thus one of the crucial resilient banks throughout every kind of downturns.

The conservative administration of F&M Financial institution leads to slower development during times of financial development however leads to increased long-term returns because of the superior returns throughout tough financial intervals, when most banks see their earnings collapse. The prudent administration of F&M Financial institution additionally helps clarify its distinctive dividend development streak. Most banks function with excessive leverage.

Consequently, their earnings stoop throughout downturns, and thus these banks can’t maintain multi-year dividend development streaks.

F&M Financial institution is a low beta inventory. Which means that the inventory worth doesn’t decline a lot in a market downturn, which makes F&M Financial institution a comparatively steady, non-volatile holding. This characteristic is paramount throughout broad market sell-offs, making it simpler for traders to keep away from panic promoting and keep a long-term investing perspective.

Valuation & Anticipated Returns

Based mostly on a share worth of ~$961 and anticipated earnings per share of $105.00 this 12 months, F&M Financial institution is buying and selling at an almost 10-year low price-to-earnings ratio of 9.1.

The inventory has traded at a mean price-to-earnings ratio of 13.1 during the last decade, however we assume a good earnings a number of of 12.0 as a result of small market cap of the inventory. If F&M Financial institution reaches our truthful worth estimate over the subsequent 5 years, it’ll take pleasure in a 5.7% annualized achieve in its returns because of the growth of its valuation stage.

Whole returns are additionally comprised of development of earnings per share and the dividends a inventory pays. F&M Financial institution presently yields 1.8%, which is barely increased than the 1.5% common dividend yield of the S&P 500.

Given 5% anticipated earnings-per-share development, the 1.8% dividend, and a 5.7% annualized growth of the price-to-earnings ratio, we count on F&M Financial institution to supply a 12.5% common annual return over the subsequent 5 years.

Remaining Ideas

As a result of its small market cap, F&M Financial institution passes underneath the radar of most traders. That is unlucky, as F&M Financial institution is an exceptionally well-managed firm that has additionally begun to pursue development aggressively in the previous few years.

Because of its resilience to recessions, F&M Financial institution provides a compelling risk-adjusted anticipated return, and thus it’s a horny candidate for individuals who need to achieve publicity to the monetary sector. The inventory earns a purchase ranking round its present inventory worth.

The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend development traders: