Dividend Kings In Focus: Farmers & Retailers Bancorp

Up to date on September fifteenth, 2023 by Aristofanis Papadatos

The Dividend Kings include firms which have raised their dividends for at the least 50 years in a row. Lots of the firms have become enormous multinational firms over the a long time, however not all of them.

You possibly can see the complete checklist of all 50 Dividend Kings right here.

We additionally created a full checklist of all Dividend Kings, together with related monetary statistics like dividend yields and price-to-earnings ratios. You possibly can obtain the complete checklist of Dividend Kings by clicking on the hyperlink beneath:

Farmers & Retailers Bancorp (FMCB) has paid uninterrupted dividends for 88 consecutive years and has raised its dividend for 58 consecutive years. And but, it has remained a comparatively small firm, buying and selling at a market capitalization of simply ~$720 million.

Regardless of its small dimension, the corporate has many issues stepping into its favor, and shareholders will probably see stable returns. The inventory’s 1.7% dividend yield is barely larger than the broader market’s 1.5% yield, and there’s room for extra dividend raises down the street.

Enterprise Overview

F&M Financial institution was based in 1916. It operates 32 branches throughout California’s Central Valley and East Bay areas. F&M Financial institution is a full-service neighborhood financial institution and thus presents loans, deposits, gear leasing, and treasury administration merchandise to companies, in addition to a full vary of shopper banking merchandise.

Regardless of working simply 32 branches, F&M Financial institution is the 14th largest financial institution lender to agriculture within the U.S. and has considerably grown its asset base. The truth is, complete belongings have grown by 12.5% yearly since 2012. And due to its prudent administration, F&M Financial institution exhibited exceptional resilience amid the pandemic and through earlier downturns.

The corporate is conservatively managed and, till seven years in the past, had not made an acquisition since 1985. Nonetheless, within the final seven years, it has aggressively pursued development. It acquired Delta Nationwide Bancorp in 2016 and elevated its areas by 4. Furthermore, in October 2018, it accomplished its acquisition of Financial institution of Rio Vista, which has helped F&M Financial institution to additional develop within the San Francisco East Bay Space.

Supply: Investor Presentation

On July nineteenth, 2023, F&M Financial institution reported monetary outcomes for the second quarter of fiscal 2023. F&M Financial institution grew its earnings per share by 19% year-over-year, from $23.57 to $28.03.

Internet curiosity revenue grew 17%, due to 7.4% mortgage development and an growth of web curiosity margin from 3.52% to 4.27%. F&M Financial institution has booked provisions for mortgage losses equal to solely 2.0% of its complete portfolio, due to its conservative portfolio.

F&M Financial institution has been among the best performers within the monetary sector within the first half of this yr. Most banks have incurred a contraction of their web curiosity margin this yr on account of a better value of deposits amid heating competitors for deposits amongst banks within the present atmosphere of 15-year excessive rates of interest.

Quite the opposite, F&M Financial institution has enhanced its web curiosity margin and is on monitor to develop its earnings per share by about 10% this yr, to a brand new all-time excessive.

Administration stays optimistic for the foreseeable future, as excessive rates of interest have significantly enhanced the financial institution’s web curiosity margin. We reiterate that F&M Financial institution is without doubt one of the most resilient banks throughout downturns, reminiscent of the nice monetary disaster and the pandemic.

Development Prospects

As beforehand talked about, F&M Financial institution has pursued development via acquisitions during the last a number of years after an extended interval of no acquisition exercise stretching again to the Eighties. It acquired Delta Nationwide Bancorp in 2016, and thus it elevated the variety of its areas by 4. Furthermore, in late 2018, it acquired Financial institution of Rio Vista and thus expanded within the San Francisco East Bay Space.

And extra not too long ago, F&M Financial institution acquired Perpetual Financial institution Federal Saving Financial institution and Ossian Monetary Providers, Inc. in 2021. Furthermore, in October 2022, the corporate accomplished the acquisition of Peoples-Sidney Monetary Company. This acquisition is predicted by administration to spice up the earnings per share by 2.5% in 2023 and by 3.9% in 2024.

F&M Financial institution has grown its earnings per share at a 13.5% common annual charge since 2013. With the surge of rates of interest to multi-year highs, F&M Financial institution has grown its earnings to an all-time excessive degree this yr.

Generally, larger rates of interest are a tailwind for banks and people with excessive quantities of belongings that subsequently earn excessive returns. Furthermore, when rates of interest are excessive, the unfold between banks’ lending charge and borrowing charge will increase and thus expands their web curiosity margin, which is a key part of their earnings. F&M has stored rising its web curiosity margin this yr.

General, we count on F&M Financial institution to develop its earnings per share by roughly 5% per yr over the subsequent 5 years, due to the constant development of its asset and mortgage portfolios, a attainable enhance within the variety of its bodily areas, and the current acquisition of Peoples-Sidney Monetary Company.

Aggressive Benefits & Recession Efficiency

F&M Financial institution is just not a huge financial institution in any respect — the corporate’s market cap is only a few hundred million {dollars}. Nonetheless, the financial institution has been a stable performer for a really very long time, and it remained secure over the past monetary disaster.

F&M Financial institution’s web earnings declined minimally in the course of the 2008-2009 recession, with earnings dropping by about ten %. That significantly contrasts with the efficiency of most different banks throughout that point. Earnings-per-share in the course of the Nice Recession are beneath:

2007 earnings-per-share of $28.05
2008 earnings-per-share of $28.69 (2.3% enhance)
2009 earnings-per-share of $25.57 (11% decline)
2010 earnings-per-share of $27.05 (5.8% enhance)

Main banks suffered earnings declines of 80% or much more in the course of the nice monetary disaster. F&M Financial institution, with its concentrate on neighborhood banking and never on extra speculative, riskier companies, has been a a lot safer funding throughout these troubled occasions.

As F&M Financial institution has not made any modifications to its enterprise mannequin since then, it’s nonetheless exceptionally resilient to recessions, at the least relative to most banks. The financial institution at present has a tier 1 capital ratio of 10.2%, which ends up in the regulatory classification of “properly capitalized” and has extraordinarily few non-performing loans. It’s thus one of the resilient banks throughout every kind of downturns.

The conservative administration of F&M Financial institution leads to slower development during times of financial development however leads to larger long-term returns due to the superior returns throughout tough financial durations, when most banks see their earnings collapse. The prudent administration of F&M Financial institution additionally helps clarify its distinctive dividend development streak. Most banks function with excessive leverage.

Consequently, their earnings hunch throughout downturns, and thus these banks can’t maintain multi-year dividend development streaks.

Supply: Investor Presentation

F&M Financial institution is a low beta inventory. Because of this the inventory value doesn’t decline a lot in a market downturn, which makes F&M Financial institution a comparatively secure, non-volatile holding. This characteristic is paramount throughout broad market sell-offs, making it simpler for traders to keep away from panic promoting and keep a long-term investing perspective.

Valuation & Anticipated Returns

Primarily based on a share value of $955 and anticipated earnings per share of $105.00 this yr, F&M Financial institution is buying and selling at an almost 10-year low price-to-earnings ratio of 9.1.

The inventory has traded at a median price-to-earnings ratio of 13.1 during the last decade, however we assume a good earnings a number of of 12.0 as a result of small market cap of the inventory. If F&M Financial institution reaches our honest worth estimate over the subsequent 5 years, it can get pleasure from a 5.7% annualized acquire in its returns due to the growth of its valuation degree.

Complete returns are additionally comprised of development of earnings per share and the dividends a inventory pays. F&M Financial institution at present yields 1.7%, which is barely larger than the 1.5% common dividend yield of the S&P 500.

Given 5% anticipated earnings-per-share development, the 1.7% dividend, and a 5.7% annualized growth of the price-to-earnings ratio, we count on F&M Financial institution to supply a 12.3% common annual return over the subsequent 5 years.

Last Ideas

Resulting from its small market cap, F&M Financial institution passes below the radar of most traders. That is unlucky, as F&M Financial institution is an exceptionally well-managed firm that has additionally begun to pursue development aggressively in the previous few years.

Because of its resilience to recessions, F&M Financial institution presents a compelling risk-adjusted anticipated return, and thus it’s a beautiful candidate for individuals who wish to acquire publicity to the monetary sector. The inventory earns a purchase score round its present inventory value.

The next articles comprise shares with very lengthy dividend or company histories, ripe for choice for dividend development traders: