All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Bank OZK in Focus
Based in Little Rock, Bank OZK (OZK - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 34.65%. The bank is currently shelling out a dividend of $0.23 per share, with a dividend yield of 2.99%. This compares to the Banks - Northeast industry's yield of 1.93% and the S&P 500's yield of 1.97%.
In terms of dividend growth, the company's current annualized dividend of $0.92 is up 15.7% from last year. Over the last 5 years, Bank OZK has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.81%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Bank OZK's current payout ratio is 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.
OZK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.49 per share, representing a year-over-year earnings growth rate of 7.72%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, OZK is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).