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Farmers National (FMNB) Shares Dip Despite 27% Dividend Hike

Farmers National Banc Corp. FMNB has announced a hike in the quarterly dividend. The bank announced a dividend of 14 cents per share, representing a hike of 27.3% from the prior payout. The dividend will be paid out on Dec 31 to shareholders of record as of Dec 10, 2021.

However, shares of the company have declined 4.51% since the hike was announced, likely reflecting broader market concerns.

The recent dividend hike marks the 6th consecutive quarter of an increase by the company. Prior to this, FMNB had hiked the dividend by 10% to 11 cents per share. We believe that such disbursements highlight the company's operational strength and commitment to enhancing shareholder wealth.

Considering the last day's closing price of $17.77 per share, Farmers National's dividend yield currently stands at 3.15%. Not only is the yield attractive for income investors, but it also represents a steady income stream.

Management noted, "since 2015, our annual cash dividend has increased at an impressive 26% compound annual growth rate, reflecting our strong financial results and commitment to returning capital to shareholders."

Can Farmers National Maintain Its Payout?

Farmers National's ability to sustain the hiked dividend depends on the earnings growth rate and the payout ratio. The company's current payout ratio of 21.05% is lower than its industry's average of 30.51%, indicating scope for its steady dividend increase.

FMNB has an impressive surprise history. Its earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters, the average beat being 28.1%. Its performance depicts a robust earnings picture. Farmers National's earnings growth rate is projected at 36.1%, higher than the industry average of 29.9%.

The company is keen on increasing its asset base, and enhancing its portfolio and balance sheet on the back of acquisitions. Early this month, Farmers National completed the acquisition with Cortland Bancorp Inc., per which Cortland's branches were merged into Farmers National, and The Cortland Savings and Banking Company was merged with Farmers National Bank. The buyout expands FMNB’s footprint in the strategic Northeast Ohio markets and increases its bank assets to more than $4.1 billion, making it one of the largest community banks in Ohio.

Farmers National also boasts a solid balance sheet. As of Sep 30, 2021, the company had long-term debt of $50 million, and cash and cash equivalents of $80 million. FMNB's times-interest-earned ratio at third-quarter 2021 end remained high at 51.3. Thus, given a robust liquidity position and decent earnings strength, the company's capital deployment activities are likely to remain sustainable.

Shares of this currently Zacks Rank #2 (Buy) company have gained 2.1% in the past six months against the industry's decline of 8.8%.


Image Source: Zacks Investment Research


Other Banks Undertaking Enhanced Capital Deployment Actions

Over the past few months, several banks have rewarded shareholders with new share-repurchase programs or dividend hikes. Some of these are KeyCorp KEYUnited Community Banks, Inc. UCBI and Bank OZK OZK.

KeyCorp has announced a hike in the quarterly dividend. KEY announced a dividend of 19.5 cents per share, representing a hike of 5.4% from the prior payout. Earlier in July, KeyCorp announced plans to hike the dividend, effective fourth-quarter 2021, subject to the board of directors' approval. The dividend will be paid out on Dec 15 to shareholders of record as of Nov 30.

In September, KeyCorp entered an accelerated share repurchase program under which it inked an agreement with a large investment bank to buy back up to $585 million worth of shares.

United Community Banks announced a new share repurchase plan, under which it is authorized to buy back up to $50 million outstanding shares. The plan will expire on Dec 31, 2022.

The new repurchase plan replaces the previous one, which authorized United Community Banks to buy back up to $50 million shares till Dec 31, 2021. As of Sep 30, 2021, UCBI had the authorization to repurchase shares worth $34.9 million remaining under the earlier plan.

Bank OZK had declared a quarterly cash dividend of 29 cents per share, reflecting a rise of 1.8% from the prior payout. The dividend was paid out on Oct 22 to shareholders of record as of Oct 15.

This was the 45th consecutive quarter of a dividend hike by Bank OZK. Prior to this, the company had hiked its dividend by 1.8% to 28.5 cents per share in July. We believe that such disbursements highlight OZK's operational strength and commitment toward enhancing shareholder wealth.

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