After performing impressively for almost two months since mid-June, equity markets began to witness extreme downturn in mid-August. Volatility has returned to the U.S. stock markets on renewed macroeconomic concerns. Thus, investors must exercise caution while making any investment decision.
Amid such a challenging operating backdrop, investors must bet on stocks with a record of steady and incremental dividend payouts in order to safeguard their portfolio. This is because dividend-paying stocks have a long history of profitability and a robust business model, helping them endure market volatility. Hence, the investment strategy will help investors generate steady returns. Today we are discussing three banks — Farmers & Merchants Bancorp, Inc. ( FMAO Quick Quote FMAO - Free Report) , CVB Financial Corp. ( CVBF Quick Quote CVBF - Free Report) and Equity Bancshares, Inc. ( EQBK Quick Quote EQBK - Free Report) — which recently announced dividend hikes. Banks are in the limelight, as the Federal Reserve has been raising interest rates since mid-March to tame the raging inflation. There are chances of more such hikes in the coming days amid a tighter job market. Higher rates, along with decent economic growth and a rise in loan demand, are expected to aid banks’ top-line growth. This makes bank stocks investor favorites currently. Over the past year, while EQBK recorded negative returns, the other two stocks have witnessed strong growth. All three stocks are trading above the Zacks Finance sector. One-year Price Performance
Image Source: Zacks Investment Research
Now, let’s discuss these banks in detail:
Farmers & Merchants Bancorp, based in Archbold, OH, provides commercial banking services to individuals and small businesses in northwest Ohio and northeast Indiana. The Zacks Rank #3 (Hold) stock has a market cap of $357.6 million. Over the past 12 months, the stock has gained 23%. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Last week, FMAO announced a quarterly cash dividend of 21 cents per share, representing a hike of 10.5% from the prior payout. The dividend will be paid out on Oct 20 to stockholders of record as of Sep 26. Prior to the raise, the company announced a dividend hike of 5.6% in December 2021. The dividend was raised from 18 cents per share to 19 cents. The company announced nine dividend hikes in the last five years. Based on the dividend paid out over the trailing four quarters, the stock has a dividend yield of 2.78% and a five-year annualized dividend growth rate of 8.7%. This is not only attractive to income investors but also represents a steady income stream. FMAO’s payout ratio is 30% of earnings. Check Farmers & Merchants Bancorp’s dividend history here.
CVB Financial has a market cap of $3.76 billion. Over the past year, shares of the Zacks Rank #3 company have rallied 36.6%. Yesterday, CVBF announced a dividend of 20 cents per share, marking a hike of 5.3% from the prior payout. The dividend will be paid out on Oct 20 to stockholders of record as of Oct 5. Before the hike, the company announced a dividend hike of 5.6% in June 2022 to 19 cents per share. In the last five years, the company announced dividend hikes twice. Based on the dividend paid out over the trailing four quarters, the stock has a dividend yield of 2.86% and a five-year annualized dividend growth rate of 7.5%. This is not only attractive to income investors but also represents a steady income stream. CVBF’s payout ratio is 52% of earnings. Check CVB Financial’s dividend history here. Equity Bancshares, headquartered in Wichita, KS, offers a range of banking, mortgage banking and financial services to individual and corporate customers through a network of 69 branches in Arkansas, Kansas, Missouri and Oklahoma. Shares of the Zacks Rank #2 (Buy) company have lost 6.9% over the past year. EQBK has a market cap of $503.7 million. Earlier this week, Equity Bancshares announced a dividend of 10 cents per share, representing a hike of 25% from the prior payout. The dividend will be paid out on Oct 14 to stockholders of record as of Sep 30. In the last five years, the company has increased its dividend just once. Based on the dividend paid out over the trailing four quarters, the stock has a dividend yield of 1.02%. Further, EQBK’s payout ratio is 8% of earnings. Check Equity Bancshares’ dividend history here. Parting Thoughts
Investors prefer dividends (specifically when macroeconomic factors are turning dismal) for a number of reasons. They greatly improve stock investing profits, lower overall portfolio risk and carry tax advantages.
But investors must be mindful when choosing stocks. Selecting stocks just based on higher dividend yields is not a good idea. Investors must also take into account company fundamentals to find compelling investment opportunities.