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It looks like Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Farmers & Merchants Bancorp's shares before the 27th of September to receive the dividend, which will be paid on the 20th of October.
The company's next dividend payment will be US$0.18 per share. Last year, in total, the company distributed US$0.68 to shareholders. Based on the last year's worth of payments, Farmers & Merchants Bancorp stock has a trailing yield of around 3.2% on the current share price of $22.56. If you buy this business for its dividend, you should have an idea of whether Farmers & Merchants Bancorp's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Farmers & Merchants Bancorp paying out a modest 36% of its earnings.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Farmers & Merchants Bancorp's earnings per share have risen 11% per annum over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Farmers & Merchants Bancorp has lifted its dividend by approximately 6.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Farmers & Merchants Bancorp an attractive dividend stock, or better left on the shelf? Companies like Farmers & Merchants Bancorp that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Farmers & Merchants Bancorp ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
On that note, you'll want to research what risks Farmers & Merchants Bancorp is facing. For example - Farmers & Merchants Bancorp has 1 warning sign we think you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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