The Dividend Kings are the best-of-the-best in dividend longevity. These are stocks with 50 or more consecutive years of dividend increases, asserts growth and income expert Ben Reynolds, editor of Sure Dividend.
The Dividend Kings list is a great place to find dividend stock ideas. However, not all the stocks in the Dividend Kings list make a great investment at any given time.
The 5 stocks featured in this report are our top-ranked Dividend Kings today, based on expected annual returns through 2025. Stocks are ranked in order of lowest to highest expected annual returns. Total returns include a combination of future earnings-per-share growth, dividends, and any changes in the P/E multiple.
Read Part 1 — Lowe’s Companies here
Part 2 — National Fuel Gas here
Founded in 1916, Farmers & Merchants Bancorp (FMCB) — the third stock in our countdown — is a locally owned and operated community bank with 32 locations in California. Due to its small market cap ($563 million) and its low liquidity, it passes under the radar of most investors.
Nevertheless, F&M Bank has paid uninterrupted dividends for 85 consecutive years and has raised its dividend for 55 consecutive years, including a 2.8% increase in May 2020.
The company is conservatively managed and, until four years ago, had not made an acquisition since 1985. However, in the last four years, it has begun to pursue growth more aggressively. It acquired Delta National Bancorp in 2016 and increased its locations by 4.
Moreover, in October-2018, it completed its acquisition of Bank of Rio Vista, which has helped F&M Bank to further expand in the San Francisco East Bay Area.
In late July, F&M Bank reported (7/27/20) financial results for the second quarter of fiscal 2020. Despite the coronavirus crisis, the bank grew its earnings-per-share by 0.6% over the prior year’s quarter. Net interest margin shrank from 4.5% to 3.8% due to suppressed interest rates but net interest income edged up marginally, thanks to growth in interest-earning assets.
Unlike most banks, which recorded significant loan loss provisions due to the pandemic, F&M Bank has booked provisions for loan losses equal to only 1.8% of its total portfolio thanks to its conservative portfolio.
The bank currently has a tier 1 capital ratio of 9.6%, which results in the highest regulatory classification of “well capitalized.” Moreover, its credit quality remains exceptionally strong, as there are no non-performing loans and leases in its portfolio.
The prudent management results in lower leverage and thus slower growth than leveraged banks during boom times but protects the company from recessions.
The merits of this strategy were on display during the Great Recession. While most banks saw their earnings collapse, F&M Bank incurred a modest -9% decrease in its earnings-per-share, from $28.69 in 2008 to $25.57 in 2009, and kept raising its dividend.
Shares trade for a 2020 P/E ratio of 9.8, compared with our fair value estimate of 12.0. An expanding valuation multiple could increase annual returns by 4.1% per year. Plus expected EPS growth of 5% and the 2% dividend yield, total returns are expected to reach 11.1% per year through 2025.
