Dividend Kings In Focus: Farmers & Retailers Bancorp

Up to date on September thirtieth, 2022 by Quinn Mohammed

The Dividend Kings encompass corporations which have raised their dividends for no less than 50 years in a row. Most of the corporations have become large multinational firms over the a long time, however not all of them. You may see the total record of all 45 Dividend Kings right here.

We additionally created a full record of all Dividend Kings, together with related monetary statistics like dividend yields and price-to-earnings ratios. You may obtain the total record of Dividend Kings by clicking on the hyperlink under:

Farmers & Retailers Bancorp (FMCB) has paid uninterrupted dividends for 87 consecutive years and has raised its dividend for 57 consecutive years. And but, it has remained a comparatively small firm, buying and selling at a market capitalization of simply ~$742 million.

Regardless of its small dimension, the corporate has many issues stepping into its favor, and shareholders will seemingly see strong returns. The inventory’s 1.6% dividend yield is barely decrease than the broader market’s 1.8% yield, however there may be 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 gives loans, deposits, gear leasing, and treasury administration merchandise to companies, in addition to a full vary of client banking merchandise.

Regardless of working simply 32 branches, F&M Financial institution has considerably grown its asset base. The truth is, whole property have grown by 12.5% yearly since 2012. And because of its prudent administration, F&M Financial institution exhibited outstanding resilience amid the pandemic and through earlier downturns.

The corporate is conservatively managed and, till six years in the past, had not made an acquisition since 1985. Nevertheless, within the final six years, it has aggressively pursued progress. It acquired Delta Nationwide Bancorp in 2016 and elevated its places 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 21^st, 2022, F&M Financial institution reported monetary outcomes for the second quarter of fiscal 2021. F&M Financial institution grew its earnings-per-share by 15% year-over-year, from $20.45 to a brand new all-time excessive of $23.58.

Web curiosity earnings grew 12%, due to mortgage progress and web curiosity margin growth. F&M Financial institution has booked provisions for mortgage losses equal to only one.9% of its whole portfolio, due to its conservative portfolio.

Administration stays optimistic for the foreseeable future, as rising rates of interest are prone to considerably improve the financial institution’s web curiosity margin. We reiterate that F&M Financial institution is among the most resilient banks throughout downturns, equivalent to the nice monetary disaster and the pandemic.

Development Prospects

As beforehand talked about, F&M Financial institution has pursued progress by way of acquisitions over the past a number of years after a protracted interval of no acquisition exercise stretching again to the Nineteen Eighties. It acquired Delta Nationwide Bancorp in 2016, and thus it elevated the variety of its places 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 Companies, Inc. in 2021. In June 2022, the corporate additionally introduced the acquisition of Peoples-Sidney Monetary Company.

F&M Financial institution has grown its earnings per share at a 12.1% common annual fee since 2012. Nevertheless, it has loved some non-recurring tailwinds over this era. In 2018, the financial institution benefited from a steep discount within the company tax fee and grew its earnings per share by 60%. As well as, in 2019, it enormously benefited from its acquisition of Financial institution of Rio Vista. Because of this, buyers shouldn’t depend on double-digit earnings progress within the upcoming years. Nevertheless, with the current rise in rates of interest, F&M Financial institution has begun aggressively pursuing progress.

Normally, increased rates of interest are a tailwind for banks and people with excessive quantities of property that due to this fact earn excessive returns. Furthermore, when rates of interest are excessive, the unfold between banks’ lending fee and borrowing fee will increase and thus expands their web curiosity margin, which is a key element of their earnings.

General, we anticipate F&M Financial institution to develop its earnings per share by roughly 5% per yr over the subsequent 5 years, due to the constant progress of its asset and mortgage portfolios, a attainable improve within the variety of its bodily places, and better rates of interest over this time horizon.

Aggressive Benefits & Recession Efficiency

F&M Financial institution shouldn’t be an enormous financial institution in any respect — the corporate’s market cap is simply a number of hundred million {dollars}. The financial institution however has been a strong 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 throughout the 2008-2009 recession, with earnings dropping by about ten %. That enormously contrasts with what different banks needed to report throughout that point. Earnings-per-share throughout the Nice Recession are under:

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

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

As F&M Financial institution has not made any modifications to its enterprise mannequin since then, it’s nonetheless exceptionally resilient to recessions, no less than relative to most banks. The financial institution presently has a tier 1 capital ratio of 8.8%, which leads to the regulatory classification of “effectively capitalized” and has extraordinarily few non-performing loans. It’s thus probably the most resilient banks within the ongoing downturn attributable to the speedy improve in rates of interest.

The conservative administration of F&M Financial institution ends in slower progress in periods of financial progress however ends in increased 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 progress streak. Most banks function with excessive leverage. Consequently, their earnings stoop throughout downturns, and thus they can not maintain multi-year dividend progress streaks.

Supply: Investor Presentation

F&M Financial institution is a low beta inventory. Which means the inventory worth 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 buyers to keep away from panic promoting and preserve a long-term investing perspective.

Valuation & Anticipated Returns

Primarily based on a share worth of $956 and anticipated earnings per share of $90.00 this yr, F&M Financial institution is buying and selling at a price-to-earnings ratio of 10.6.

The inventory has traded at a mean price-to-earnings ratio of 13.8 over the past decade, however we assume a good earnings a number of of 12.0 because of the small market cap of the inventory. If F&M Financial institution reaches our truthful worth estimate over the subsequent 5 years, it would get pleasure from a 2.5% annualized achieve in its returns due to the growth of its valuation stage.

Complete returns are additionally comprised of share worth positive factors and the dividends a inventory pays. F&M Financial institution presently yields 1.6%, which is slightly below the S&P 500’s common dividend yield.

Given 5% anticipated earnings-per-share progress, the 1.6% dividend, and a 2.5% annualized growth of the price-to-earnings ratio, we anticipate F&M Financial institution to supply a 9% common annual return over the subsequent 5 years.

Ultimate Ideas

Because of its small market cap, F&M Financial institution passes beneath the radar of most buyers. That is unlucky, as F&M Financial institution is an exceptionally well-managed firm that has additionally begun to aggressively pursue progress in the previous couple of years.

Because of its resilience to recessions, F&M Financial institution gives a compelling risk-adjusted anticipated return, and thus it’s a lovely candidate for many who wish to achieve publicity to the monetary sector. In the interim, although, we fee FMBC as a maintain.

The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend progress buyers: