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Why Farmers & Merchants Bancorp Inc. (FMAO) is a Top Dividend Stock for Your Portfolio

Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does Farmers & Merchants Bancorp In...

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This story originally appeared on Zacks

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

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Cash flow can come from bond interest, interest from other types of investments, and of course, 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 -1.43%. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 3%. In comparison, the Banks - Northeast industry's yield is 2.05%, while the S&P 500's yield is 1.36%.

In terms of dividend growth, the company's current annualized dividend of $0.68 is up 3% from last year. In the past five-year period, Farmers & Merchants Bancorp Inc. has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.47%. 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 37%. This means it paid out 37% of its trailing 12-month EPS as dividend.

FMAO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $2.10 per share, representing a year-over-year earnings growth rate of 25%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that FMAO is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).



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