Farmers & Merchants Bancorp Inc. (FMAO) Could Be a Great Choice
All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Farmers & Merchants Bancorp Inc. In Focus
Based in Archbold, Farmers & Merchants Bancorp Inc. (FMAO) is in the Finance sector, and so far this year, shares have seen a price change of -7.43%. The company is currently shelling out a dividend of $0.2 per share, with a dividend yield of 2.5%. This compares to the Banks - Northeast industry's yield of 2.44% and the S&P 500's yield of 1.6%.
In terms of dividend growth, the company's current annualized dividend of $0.76 is up 7% from last year. Farmers & Merchants Bancorp Inc. has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.65%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Farmers & Merchants Bancorp Inc.'s current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FMAO expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $2.61 per share, which represents a year-over-year growth rate of 14.47%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FMAO is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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