Dividend Kings In Focus: Farmers & Merchants Bancorp

Up to date on October twenty ninth, 2024 by Aristofanis Papadatos

The Dividend Kings include firms which have raised their dividends for at the least 50 years in a row. Lots of the firms have changed into big multinational companies over the a long time, however not all of them.

You possibly can see the total listing of all 53 Dividend Kings right here.

We additionally created a full listing of all Dividend Kings, together with related monetary statistics like dividend yields and price-to-earnings ratios. You possibly can obtain the total listing of Dividend Kings by clicking on the hyperlink under:

Dividend Kings In Focus: Farmers & Merchants Bancorp

Farmers & Retailers Bancorp (FMCB) has paid uninterrupted dividends for 89 consecutive years and has raised its dividend for 59 consecutive years. And but, it has remained a comparatively small firm, buying and selling at a market capitalization of simply ~$676 million.

Regardless of its small measurement, the corporate has many issues moving into its favor, and shareholders will seemingly see strong returns. The inventory’s 1.8% dividend yield is barely increased than the broader market’s 1.2% yield, and there’s room for extra dividend raises down the highway.

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 group financial institution and thus presents 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 fifteenth largest financial institution lender to agriculture within the U.S. and has considerably grown its asset base. The truth is, whole belongings 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 (10/17/24) monetary outcomes for the third quarter of fiscal 2024. The financial institution grew its earnings per share 2.5% over the prior 12 months’s quarter, from $29.23 to $29.96. It posted 4% development of loans and flat deposits. Web curiosity earnings dipped 3% because of a contraction of internet curiosity margin from 4.17% to 4.07% amid increased deposit prices.

Administration stays optimistic for the foreseeable future, because the financial institution enjoys one of many widest internet curiosity margins in its sector. We reiterate that F&M Financial institution is likely one of the most resilient banks throughout downturns, such because the pandemic, a possible recession or the monetary turmoil attributable to the collapse of Silicon Valley Financial institution, Credit score Suisse and First Republic. Given the constructive enterprise efficiency of F&M Financial institution, we anticipate report earnings per share of $122.00 this 12 months.

Development 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 Nineteen 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 15.2% common annual charge since 2014. With the surge of rates of interest to nearly 23-year highs, F&M Financial institution has grown its earnings to an all-time excessive stage this 12 months.

On the whole, increased rates of interest are a tailwind for banks and people with excessive quantities of belongings that subsequently earn excessive returns. Furthermore, when rates of interest are excessive, the unfold between banks’ lending charge and borrowing charge will increase and thus expands their internet curiosity margin, which is a key part of their earnings.

Nonetheless, most banks have incurred a pointy contraction of their internet curiosity margin since early final 12 months because of excessive deposit prices amid intense competitors amongst banks for deposits. Nonetheless, F&M Financial institution has outperformed its friends on this facet, because it has maintained one of many widest internet curiosity margins within the monetary sector.

General, we anticipate F&M Financial institution to develop its earnings per share by roughly 5% per 12 months over the following 5 years, due to the constant development of its asset and mortgage portfolios, and a potential improve within the variety of its bodily places.

Aggressive Benefits & Recession Efficiency

F&M Financial institution isn’t a giant financial institution — the corporate’s market cap is $676 million. Nonetheless, the financial institution has been a strong performer for a really very long time, and it remained steady over the last monetary disaster.

F&M Financial institution’s internet earnings declined minimally throughout the 2008-2009 recession, with earnings dropping by about 10%. That vastly 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% improve)
2009 earnings-per-share of $25.57 (11% decline)
2010 earnings-per-share of $27.05 (5.8% improve)

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

As F&M Financial institution has not made any modifications to its enterprise mannequin since then, it’s nonetheless exceptionally resilient to recessions, at the least relative to most banks. The financial institution presently has a complete capital ratio of 14.95%, which leads to the regulatory classification of “nicely capitalized” and has extraordinarily few non-performing loans. It’s thus probably the most resilient banks throughout all types 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 due to the superior returns throughout tough financial durations, 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 droop throughout downturns, and thus these banks can not 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 function is paramount throughout broad market sell-offs, making it simpler for buyers to keep away from panic promoting and keep a long-term investing perspective.

Valuation & Anticipated Returns

Based mostly on a share worth of ~$967 and anticipated earnings per share of $122.00 this 12 months, F&M Financial institution is buying and selling at a virtually 10-year low price-to-earnings ratio of seven.9.

The inventory has traded at a mean price-to-earnings ratio of 12.6 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 following 5 years, it’ll take pleasure in an 8.6% annualized achieve in its returns due to 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 increased than the 1.2% common dividend yield of the S&P 500.

Given 5% anticipated earnings-per-share development, the 1.8% dividend, and an 8.6% annualized growth of the price-to-earnings ratio, we anticipate F&M Financial institution to supply a 15.3% common annual return over the following 5 years.

Closing Ideas

Resulting from its small market cap, F&M Financial institution passes underneath the radar of most buyers. 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 couple of years.

Due to its resilience to recessions, F&M Financial institution presents a compelling risk-adjusted anticipated return, and thus it’s a beautiful candidate for many who wish to achieve publicity to the monetary sector. The inventory earns a purchase ranking round its present inventory worth.