As always, Bank OZK (OZK - Free Report) has announced an increase in its regular quarterly cash dividend. The company has approved a dividend of 24 cents per share, representing 4.35% rise from the prior payout. The dividend will be paid on Jul 19 to shareholders on record as of Jul 12, 2019.
This marks the 36th consecutive quarter of dividend hike by the company. Based on this, Bank OZK’s dividend yield stands at 3.22%, considering last day’s closing price of $29.84. Not only the yield is attractive for income investors, it also represents a steady stream of income.
While the stock looks attractive based on the regular rise in dividend income, one must take a look at Bank OZK’s fundamentals and financial performance before taking any investment decision.
Bank OZK has grown substantially through de novo branching strategy and inorganically. Over the last five years (2014-2018), the company’s revenues witnessed a CAGR of 29.5%. Given its strong balance-sheet position, the bank is expected to keep expanding through acquisitions. It also plans to open additional branches in new and existing markets.
Further, over the last three-five years, the company witnessed earnings per share growth of 21.6%. Additionally, it is expected to deliver strong earnings performance as indicated by its projected earnings growth of 7.7% and 2.7% for 2019 and 2020, respectively.
Bank OZK displays strong financial leverage. Its debt/equity ratio of 0.09 compares favorably with the industry average of 0.40, indicating a lower debt burden relative to the industry.
Furthermore, Bank OZK looks undervalued based on price-to-earnings (P/E) and price-to-book (P/B) ratios. The company currently has a P/E ratio of 8.55 and P/B ratio of 1.00, which are below the industry average of 11.78 and 1.2, respectively. Also, the stock has a Value Score of B. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential.
Moreover, Bank OZK’s trailing 12-month return on equity (ROE) reflects its superiority in terms of utilizing shareholders’ fund. The company’s ROE of 11.11% compares favorably with 10.16% for the industry.
Based on the above-mentioned factors, the stock seems worth investing in, but one must look in to 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. Furthermore, it is making adjustments in investment securities portfolios leading to lower yields. Thus, the trend will likely persist in the near term.
Also, mounting non-interest expenses pose a concern for the company. Over the last five years (2014-2018), expenses witnessed a CAGR of 23.1%. As the company continues to expand inorganically and open branches in newer areas, overall expenses are expected to remain elevated.
Moreover, Bank OZK’s price performance is quite disappointing. Its shares have plunged 34.1% in the past year compared with the decline of 11.8% for the industry it belongs to.
Just because Bank OZK has announced a dividend hike, it will not be wise to bet on the stock right away. Pressure on margins and rising expenses make us apprehensive about its prospects.
In addition, its Zacks Consensus Estimate for 2019 earnings has remained unchanged in the past 60 days. Further, the stock currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other finance stocks which raised their dividends during the past three months include Lazard Ltd. (LAZ - Free Report) , Main Street Capital Corporation (MAIN - Free Report) and First Midwest Bancorp (FMBI - Free Report) . Lazard raised its quarterly dividend by 7%, while First Midwest Bancorp increased by 17%. Main Street Capital has also announced a 2.5% rise in its common stock dividend.
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