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

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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.

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 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

Farmers & Merchants Bancorp Inc. (FMAO - Free Report) is headquartered in Archbold, and is in the Finance sector. The stock has seen a price change of 4.78% since the start of the year. The company is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.82%. This compares to the Banks - Northeast industry's yield of 2% and the S&P 500's yield of 1.28%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.68 is up 3% from last year. Farmers & Merchants Bancorp Inc. has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.71%. 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 40%, meaning it paid out 40% 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 $1.85 per share, which represents a year-over-year growth rate of 10.12%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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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