Farmers & Merchants Bancorp: A Dividend King Navigating Agricultural Risks

Farmers & Merchants Bancorp (NASDAQ: FMAO) has long been a symbol of financial reliability, boasting an 89-year dividend streak and 59 consecutive years of dividend increases—a feat that earns it the title of one of only 51 “Dividend Kings.” Yet, beneath its dividend pedigree lies a unique risk: its deep ties to agricultural lending, a sector increasingly shaped by volatile export markets and seasonal cycles. For investors, this presents a compelling opportunity—but also a balancing act between reward and risk.

The Dividend Machine

Farmers & Merchants Bancorp’s dividend discipline is unmatched. Its latest quarterly dividend of $0.22125 per share, announced in March 2025 and payable in April, reflects a commitment to shareholder returns rooted in rock-solid financials. In Q1 2025, the bank reported a diluted EPS of $32.86, up 7.6% year-over-year, driven by a $23 million net income and robust capital ratios. With a total risk-based capital ratio of 15.23% (well above regulatory “well-capitalized” thresholds), the bank has the liquidity to sustain its dividend even amid macroeconomic headwinds.

The Agricultural Double-Edged Sword

While the dividend is a clear strength, the bank’s agricultural loan exposure demands scrutiny. As the 16th largest U.S. bank lender to agriculture, Farmers & Merchants has long prioritized California’s fertile regions, including the Central Valley. This focus, however, introduces sector-specific risks.

In Q1 2025, total loans and leases dipped to $3.6 billion, a 2.56% quarterly decline partly attributed to seasonal agricultural lending patterns and conservative underwriting in an inverted yield curve environment. Management has opted to avoid longer-term agricultural loans exceeding three years, a prudent move given uncertain interest rate trajectories.

Despite these headwinds, credit quality remains pristine. Non-accrual loans totaled just $193,000 (0.01% of total loans), and net charge-offs were minimal at $160,000. The bank’s proactive support for borrowers impacted by export market challenges—such as reduced demand from key trading partners—has helped mitigate defaults. Management also sees potential relief from recent tariffs and a weakened U.S. dollar, which could boost agricultural exports and farmer incomes.

Risk vs. Reward: Why Investors Should Pay Attention

Farmers & Merchants Bancorp’s dividend reliability is undeniable. With a 59-year streak of increases, it sits among an elite group of companies that have weathered recessions, inflation, and market volatility. Its balance sheet—boasting $5.7 billion in assets, $607 million in cash, and a $2.1 billion borrowing capacity—further underscores its resilience.

However, the agricultural sector’s risks remain a wildcard. California’s farmers face challenges from climate-driven water shortages, geopolitical trade disputes, and commodity price fluctuations. A prolonged downturn in agriculture could strain loan portfolios, though the bank’s conservative underwriting and minimal non-performing loans suggest it has hedged these risks effectively.

Conclusion: A Balanced Bet on Consistency

Farmers & Merchants Bancorp is a compelling investment for those seeking dividend stability with a dose of sector-specific exposure. Its dividend track record is unrivaled, and its financial fortress—backed by top-tier capital ratios and industry recognition (e.g., #2 in Bank Director’s “Best Performing Banks”)—justifies confidence.

The agricultural risk, while real, is mitigated by the bank’s seasonal awareness, geographic focus on high-productivity regions, and proactive borrower support. With a $32.86 EPS and a dividend payout ratio well below sustainable levels, the bank has ample room to grow its dividend further.

Investors should monitor two key metrics: agricultural loan growth (to gauge sector recovery) and non-performing loan trends (to assess credit quality). If the bank continues to navigate these risks with its current prudence, its “Dividend King” crown will remain unchallenged.

In sum, Farmers & Merchants Bancorp offers a rare blend of historical reliability and sector-specific upside, making it a standout choice for income-focused investors willing to accept measured risks.