Farmers & Merchants Bancorp: A Small But Growing Dividend King

The Dividend Kings consist of companies that have raised their dividends for at least fifty years in a row. Many of the companies have turned into huge multinational corporations over the decades, but not all of them.

Farmers & Merchants Bancorp (FMCB), which has raised its dividend for 52 years in a row, has remained a relatively small company, trading at a market capitalization of just $370 million.

Despite its small size the company has many things going in its favor, and shareholders will likely see compelling returns going forward. The dividend yield is higher than the broad market’s yield, and there is a lot of room for more dividend increases down the road.

Business Overview

F&M Bank was founded in 1916, yet, despite being in business for more than a century, the company hasn’t expanded very much.

F&M Bank operates 25 branches across the Central Valley and East Bay areas in California. F&M Bank is a full service community bank, which means that it provides services such as checking accounts, lending, etc. for businesses as well as for individuals.

Despite operating just 25 branches F&M Bank’s asset base has grown quite a lot over the decades. F&M Bank’s $3.1 billion in assets and $300 million of book value mean that each branch has an average of $124 million in assets (and $12 million of book value).

F&M Bank is backed by the Federal Deposit Insurance Corporation (FDIC), thus customers of the bank don’t have to worry about the safety of their deposits.

Growth Prospects

There are several reasons why F&M Bank’s growth outlook is quite solid, the first one is the macro environment for banks.

Rising interest rates are a negative for companies that are heavily indebted, but a plus for banks and other companies with a high amount of assets that will return more money with interest rates being at a higher level.

In a rising rates environment banks are able to increase the interest rates they take from debtors at a faster pace than the interest rate they pay to lenders. The result is a rising net interest margin, which is a key component for earnings growth for banks.