Farmers & Merchants Bancorp: An Under-Appreciated Dividend King

| About: Farmers & (FMCB)

Summary

Farmers & Merchants Bancorp is a California based community bank.

It is a Dividend King, with over 50 years of consecutively rising dividends.

It receives little coverage compared to other Dividend Kings, making it a relatively uncovered gem.

Farmers & Merchants Bancorp (OTCQX:FMCB) receives little coverage on Seeking Alpha. This is due to the fact that it is a local, small-cap community bank that trades on the over-the-counter markets, which do not receive as much attention as the NYSE or the Nasdaq. Nonetheless, this relative obscurity hides from investors a stock with great potential for steady, sustainable dividend income.

Overview

Farmers & Merchants Bancorp Inc. is the holding company for the Farmers & Merchants Bank of Central California. The bank has been serving the residents of Central Valley and East Bay since 1916, with twenty offices located within these areas, and is headquartered in Lodi, California. It employs 316 people, and has a market capitalization of $129.89 million.

The bank is a community bank which serves local retail customers and small to medium-sized businesses. It also offers commercial services such as a merchants' credit card program, account reconciliation, and collection services (e.g. lockbox).

Competitive Advantage

Farmers & Merchants Bancorp is a very conservatively managed community bank, and this conservatism has allowed it to remain a profitable operation for a century now. Net income over the last five years has been between $9-10 million, a stable range which testifies to the bank's conservatism.

A more striking fact which shows the bank's conservatism and financial health is its dividend history. Farmers & Merchants Bancorp have been paying consecutively rising dividends since 1965, making it both a Dividend Aristocrat and a Dividend King. To have a durable record of paying rising dividends to shareholders, a company must be in good financial health. That Farmers & Merchants Bancorp have been able to make such payments for over half a century testifies to their prudent management.

Farmers & Merchants Bancorp's steady net income will likely ensure that its dividend will be well supported for years to come.

Valuation

Currently, Farmers & Merchants Bancorp is trading in the mid-$580 range, offering a price-to-earnings ratio of 16.37 and a dividend yield of 2.24%. What is striking about the stock is how thinly traded it is, though that is true of many over-the-counter stocks. Farmers & Merchants Bancorp's stock has a volume of 22, and its average three month volume is 34. By way of comparison, another Dividend King, Emerson Electric (NYSE:EMR), has a volume of 3,091,739 and an average three month volume of 3,568,440. That shows how thinly traded Farmers & Merchants Bancorp is, and the long-term nature of the investors who own its shares.

Final Thoughts

Farmers & Merchants Bancorp gets little love from the investing community due to its over-the-counter trading, its small-cap size, and its local operations. But for those who are aware of it, it is a stock to buy and hold for the very long-term - it is a conservatively managed bank with a century of history and a half-century of rewarding shareholders with consecutively rising dividends, and it looks set to continue doing so for the foreseeable future.

DISCLAIMER: I am not a financial professional and accept no responsibility for any investment decisions a reader makes. This article is presented for information purposes only. Furthermore, the figures cited are the product of the author's own research and may differ from those of other analysts. Always do your own due diligence when researching potential investments.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.