Yet again, Bank of the Ozarks’ board of directors has approved a hike in quarterly dividend. The company announced a dividend of 20 cents, a rise of 2.6% from the prior payout. The dividend will be paid on Jul 20 to shareholders on record as of Jul 13.
This is the 32rd consecutive quarterly dividend increase by the bank. Based on yesterday’s closing price of $45.31 per share, the dividend yield is 1.76%.
Given a solid capital and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.
However, is it worth considering Bank of the Ozarks stock based on this dividend income?
Let’s dig deeper into its financial performance and fundamentals to understand the risks and rewards.
Driven by the de novo branching strategy as well as acquisitions, the company’s revenues have witnessed a CAGR of 31.7% over the last six years (2012–2017). Also, its projected sales growth rates of 11.5% and 14.9% for 2018 and 2019, respectively, ensure the continuation of uptrend in revenues.
Additionally, over the last three-five years, the company witnessed earnings per share (EPS) growth of 26.3%, significantly above the industry average of 8.6%. Also, it is expected to deliver strong earnings performance as indicated by its projected EPS growth of 24.7% and 16.7% for 2018 and 2019, respectively.
Bank of the Ozarks displays strong financial leverage. Its debt/equity ratio of 0.10 compares favorably with the industry average of 0.32, indicating a lower debt burden relative to the industry.
Further, the stock looks undervalued based on its price-to-earnings (P/E) and PEG ratios. The company currently has a P/E ratio of 12.22 and a PEG ratio of 1.02, which are below the industry average of 15.00 and 1.50, respectively. Also, the stock has a Value Score of B.
Based on the above-mentioned factors, the stock looks worth investing in, but one should take into consideration the following downsides before taking the final decision.
Bank of the Ozarks’ net interest margin continues to remain under pressure despite rise in interest rates. Reduction of the high yielding purchased loans portfolio is one of the main reasons for margin pressure. Further, it is making adjustments in investment securities portfolios leading to lower yields. Thus, the trend is expected to persist in the near term.
Also, mounting non-interest expenses remain a concern for the company. Over the last six years (2012–2017), expenses witnessed a CAGR of 23.8%. As the company continues to expand inorganically and open branches in newer areas, overall costs are expected to remain elevated.
Moreover, Bank of the Ozarks’ price performance is disappointing. Its shares have lost 6% in the past three months against 0.9% growth for the industry it belongs to.
Just because Bank of the Ozarks has announced a dividend hike, we don’t think it will be wise to bet on the stock right away. Rising expenses and pressure on margins make us apprehensive about its prospects.
Notably, its Zacks Consensus Estimate for the current-year earnings has also remained stable in the last 30 days. Thus, the stock currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the same space include FCB Financial Holdings, Inc. (FCB - Free Report) , CenterState Bank Corporation (CSFL - Free Report) and Popular, Inc. (BPOP - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for FCB Financial has moved marginally upward for the current year, in the last 60 days. The company’s share price has increased nearly 22.1% in the past year.
CenterState Bank shares have gained 14.8% in a year time. Further, its 2018 earnings estimates have moved 3.6% upward, in the last 60 days.
Popular witnessed a marginal upward earnings estimate revision for the current year, in the last 60 days. Its share price has jumped 6.4% in the past year.
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