Since July 2023, Federal Agricultural Mortgage Corporation (NYSE: AGM), also known as Farmer Mac, has demonstrated exceptional performance with a return of over 17%, outpacing the S&P 500’s return of 11.5%.
A recent dividend increase of 27% has prompted a reevaluation of the company’s valuation and potential for continued growth.
Strong Financial Performance and Dividend Increase
Farmer Mac’s recent decision to raise its dividend by 27% signals good financial health and confidence in future earnings potential.
This substantial increase is a rarity and highlights the company’s good cash flow and prudent financial management.
The new quarterly dividend rate of $1.40 per share reflects a yield of just over 3%, which, while below the four-year average of 3.34%, still presents significant value given the company’s growth trajectory.
Business Model and Market Position
Farmer Mac operates in two primary segments:
Agricultural Financing: This segment, which forms the bulk of the business, focuses on loans secured by agricultural real estate, encompassing farms and ranches. It also includes AgFinance corporate loans.
Rural Infrastructure Finance: This area concentrates on financing rural utilities and renewable energy projects, reflecting a growing market need.
The company’s strategy involves purchasing agricultural and rural loans from lenders, providing them with liquidity and a secondary market.
This model has allowed Farmer Mac to build a diverse and stable loan portfolio, primarily comprising crop (49%), permanent planting (22%), and livestock (19%) loans.
Geographic and Portfolio Diversification
Farmer Mac’s exposure is well-distributed across the United States, with significant concentrations in the Southwest.
This geographic and sector diversification helps mitigate risks associated with market fluctuations and specific regional economic challenges.
Impressive Dividend Track Record and Growth Prospects
The dividend history of Farmer Mac is commendable, with 12 consecutive years of increases. The compound annual growth rate (CAGR) of the dividend over the past decade stands at 25.12%, resulting in a total increase of 900%.
This consistent growth not only enhances shareholder value but also improves the yield on cost over time, significantly benefitting long-term investors.
Valuation and Market Outlook
Despite trading at a P/E ratio of 11.33, slightly above its five-year average of 10.20x, Farmer Mac appears undervalued when considering its growth prospects and recent financial performance.
The Wall Street consensus price target of $227 per share suggests a potential upside of 26.87% from current levels.
Updated Financials and Strategic Growth
Farmer Mac’s most recent financial results for Q4 2023 reveal a revenue increase of 18.4% year-over-year, with net interest income growing by 21%.
The total business volume for 2023 was $2.55 million, a notable increase from $2.3 million in 2022.
These figures underscore the company’s ability to effectively manage and expand its loan portfolio while maintaining a low delinquency rate of only 0.12%.
Risks and Considerations
While Farmer Mac’s fundamentals are strong, it operates in a market sensitive to economic cycles and interest rate changes.
However, the company’s conservative lending practices and stringent borrower assessments mitigate these risks.
Additionally, the potential for increased delinquencies in a recession scenario is a concern but is counterbalanced by the company’s solid liquidity and capital position.
Strong Buy Recommendation
Federal Agricultural Mortgage Corp represents a compelling investment opportunity, combining growth potential with a conservative risk profile.
The company’s ability to consistently increase dividends, coupled with strategic management and a solid position in niche markets, make a compelling case for investors.
With potential significant upside and strong financial health, Farmer Mac is well-positioned to continue its trajectory of outperforming market indices and delivering substantial shareholder value.
DISCLAIMER
You should read and understand this disclaimer in its entirety before joining or viewing the website or email/blog list of SmallCapStocks.com (the “Publisher”). The information (collectively the “Advertisement”) disseminated by email, text or other method by the Publisher including this publication is a paid commercial advertisement and should not be relied upon for making an investment decision or any other purpose. The Publisher is engaged in the business of marketing and advertising the securities of publicly traded companies in exchange for compensation. The track record, gains, upside, and/or losses mentioned in the Advertisement, if any, should not be considered as true or accurate or be the basis for an investment. The Publisher does not verify the accuracy or completeness of any information included in the Advertisement. While the Publisher does not charge for the SMS service, standard carrier message and data rates may apply. To unsubscribe from receiving promotional text messages to your phone sent via an autodialer, using your phone reply to the sender’s phone number with the word STOP or HELP for help.
The Advertisement is not a solicitation or recommendation to buy securities of the advertised company. An offer to buy or sell securities can be made only by a disclosure document that complies with applicable securities laws and only in the states or other jurisdictions in which the security is eligible for sale. The Advertisement is not a disclosure document. The Advertisement is only a favorable snapshot of unverified information about the advertised company. An investor considering purchasing the securities, should always do so only with the assistance of his legal, tax and investment advisors. Investors should review with his or her investment advisor, tax advisor or attorney, if and to the extent available, any information concerning a potential investment at the web sites of the U.S. Securities and Exchange Commission (the "SEC") at www.sec.gov; the Financial Industry Regulatory Authority (the "FINRA") at www.FINRA.org, and relevant State Securities Administrator website and the OTC Markets website at www.otcmarkets.com. The Publisher cautions investors to read the SEC advisory to investors concerning Internet Stock Fraud at www.sec.gov/consumer/cyberfr.htm, as well as related information published by the FINRA on how to invest carefully. Investors are responsible for verifying all information in the Advertisement. As an advertiser, we do not verify any information we publish. The Advertisement should not be considered true or complete.
The Publisher does not offer investment advice or analysis, and the Publisher further urges you to consult your own independent tax, business, financial and investment advisors concerning any investment you make in securities particularly those quoted on the OTC Markets. Investing in securities is highly speculative and carries an extremely high degree of risk. You could lose your entire investment if you invest in any company mentioned in the Advertisement. You acknowledge that we are not an investment advisory service, a broker-dealer or an investment adviser and we are not qualified to act as such. You acknowledge that you will consult with your own independent, tax, financial and/or legal advisers regarding any decisions as to any company mentioned here. We have not determined if the Advertisement is accurate, correct or truthful. The Advertisement is compiled from publicly available information, which include, but are not limited to, no cost online research, magazines, newspapers, reports filed with the SEC or information furnished by way of press releases. Because all information relied upon by us in preparing an advertisement about an issuer comes from a public source, it is not reliable, and you should not assume it is accurate or complete.
By your subscription to our profiles, the viewing of this profile and/or use of our website, you have agreed and acknowledged the terms of our full disclaimer and privacy policy which can be viewed at the following link: www.SmallCapStocks.com/Disclaimer and www.SmallCapStocks.com/Privacy-Policy
By accepting the Advertisement, you agree and acknowledge that any hyperlinks to the website of (1) a client company, (2) the party issuing or preparing the information for the company, or (3) other information contained in the Advertisement is provided only for your reference and convenience. The advertiser is not responsible for the accuracy or reliability of these external sites, nor is it responsible for the content, opinions, products or other materials on external sites or information sources. If you use, act upon or make decisions in reliance on information contained in any disseminated report/release or any hyperlink, you do so at your own risk and agree to hold us, our officers, directors, shareholders, affiliates and agents harmless. You acknowledge that you are not relying on the Publisher, and we are not liable for, any actions taken by you based on any information contained in any disseminated email or hyperlink.
