Farmers & Merchants Bancorp Inc. (FMAO) is a Top Dividend Stock Right Now: Should You Buy?

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Farmers & Merchants Bancorp Inc. In Focus

Farmers & Merchants Bancorp Inc. (FMAO) is headquartered in Archbold, and is in the Finance sector. The stock has seen a price change of 2.83% since the start of the year. Currently paying a dividend of $0.18 per share, the company has a dividend yield of 3.04%. In comparison, the Banks - Northeast industry's yield is 1.93%, while the S&P 500's yield is 1.37%.

Looking at dividend growth, the company's current annualized dividend of $0.72 is up 9.1% from last year. Over the last 5 years, Farmers & Merchants Bancorp Inc. has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.34%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company'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.

Looking at this fiscal year, FMAO expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $2.03 per share, representing a year-over-year earnings growth rate of 20.83%.

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. It's important to keep in mind that not all companies provide 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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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