Farmer Mac: Ultra Safe Dividend Growth With Double Digit Upside Potential

Core Viewpoint - Federal Agricultural Mortgage Corporation (AGM) has demonstrated strong financial performance and significant dividend growth, leading to a potential upside in share price and continued investment appeal [2][18]. Dividend Growth - AGM raised its dividend by 27.3% to $1.40 per share, resulting in a starting yield of slightly over 3% [3][5]. - The company has a history of 12 consecutive years of dividend increases, with a compound annual growth rate (CAGR) of 25.12% over the last decade, totaling a 900% increase [5]. - The current payout ratio is only 30%, which is lower than the sector median of 37%, indicating a strong capacity for future dividend growth [5][18]. Financial Performance - AGM reported Q4 2023 revenue of $90 million, an 18.4% year-over-year increase, with earnings per share (EPS) of $4.10 [9]. - Net interest income grew by 21% year-over-year, totaling $327.5 million for Q4 2023, driven by increased business volume [9][10]. - Total business volume for 2023 was $2.55 billion, up from $2.3 billion in 2022 [9]. Business Segments - AGM operates in two main segments: Agricultural Financing, which includes farm and ranch operations, and Rural Infrastructure Finance, focusing on rural utilities and renewable energy [2][12]. - The agricultural finance segment grew by 6% year-over-year to $20.5 billion, while the rural infrastructure segment saw a 21% increase to $8 billion [12][13]. Valuation Metrics - AGM currently trades at a P/E ratio of 11.33, compared to a five-year average of 10.20, with an average Wall Street price target of $227 per share, indicating a potential upside of 26.87% [6][8]. - A dividend discount model estimates a fair share price of $224, representing over 25% upside from current levels [8][18]. Risk Profile - AGM maintains a low delinquency rate of 0.12%, reflecting effective borrower assessment and risk management practices [10][15]. - The company has $376 million in cash from operations and a net income margin of 57%, positioning it well to navigate current market conditions [17].