Bank OZK’s (OZK - Free Report) board of directors has approved a hike in quarterly dividend. The company announced a dividend of 21 cents, marking an increase of 5% from the prior payout. The dividend will be paid on Oct 19 to shareholders of record as of Oct 12.
This is the 33rd consecutive quarterly dividend increase by the bank. Based on yesterday’s closing price of $37.80 per share, the dividend yield is 2.2%.
Given a solid capital and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.
However, let’s see whether it is worth considering Bank OZK stock based on this dividend income.
Let’s dig deeper into the bank’s financial performance and fundamentals to understand risks and rewards.
Driven by the de novo branching strategy, as well as acquisitions, the company’s revenues witnessed a CAGR of 31.7% over the last six years (2012-2017). Further, its projected sales growth rates of 8.5% and 10.4% 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 26.1%, significantly above the industry average of 9.8%. Further, it is expected to deliver strong earnings performance as indicated by its projected EPS growth of 22.3% and 10.5% for 2018 and 2019, respectively.
Bank OZK displays strong financial leverage. Its debt/equity ratio of 0.10 compares favorably with the industry average of 0.50, 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 (F1) ratio of 10.37 and a PEG ratio of 0.86, which are below the industry average of 13.70 and 1.56, respectively. Moreover, the stock has a Value Score of A.
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 OZK’s 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.
Further, 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 OZK’s price performance is disappointing. Its shares have lost 16.6% in the past three months compared with 7.2% decline of the industry it belongs to.
Just because Bank OZK 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 current-year earnings has also remained unchanged in the past 30 days. Thus, the stock currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the same space include Farmers & Merchants Bancorp, Inc. (FMAO - Free Report) , First Mid-Illinois Bancshares, Inc. (FMBH - Free Report) and Horizon Bancorp, Inc. (HBNC - Free Report) .
In the past 60 days, the Zacks Consensus Estimate for Farmers & Merchants Bancorp has remained stable for the current year. The company’s share price has increased nearly 15% in the past year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
First Mid-Illinois Bancshares’ shares have gained 1.5% in a year. Further, its 2018 earnings estimates have moved marginally upward in the past 60 days. The stock currently has a Zacks Rank #2 (Buy).
In the past 60 days, Horizon Bancorp also has a Zacks Rank of 2. It witnessed a marginal upward earnings estimate revision for the current year. Its share price has increased marginally in the past year.
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