Income investors seek a steady stream of dividends. Bank OZK’s dividend history is long and it might make a great addition to an income portfolio. Let’s take a look at the business, dividend history, and payout safety going forward.
Business Overview and Highlights
Bank OZK (NSDQ: OZK) is a $4.1 billion business. The company is based out of Arkansas and it employs 2,600 people. Last year Bank OZK pulled in $1.2 billion in sales and that breaks down to $472,000 per employee.
Bank OZK has had great success acquiring other banks in the south and southeastern regions of the country. The 2015 acquisition of C1 Bank marked Bank OZK’s fifteenth acquisition since March, 2010. Bank OZK is the largest bank in Arkansas.
On April 1, 2019 the company’s board of directors announced a $0.23 quarterly dividend.
Bank OZK’s 10-Year Dividend History
The company paid investors $0.13 per share a decade ago. Over the last 10 years, the dividend has climbed to $0.80. That’s a 512% increase and you can see the annual changes below…
The compound annual growth is 19.9% over 10 years… but over the last year, the dividend climbed 12%. The slowdown in dividend growth isn’t a great sign. Although, Bank OZK still might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Bank OZK’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital and we’ll look at that soon.
The dividend yield comes in at 2.87% and that’s above the 10-year average of 1.82%. The chart below shows the dividend yield over the last 10 years…
The higher yield shows that investors have bid down the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that every $1 Bank OZK earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here is Bank OZK’s payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is down. In 2011 and 2012 Bank OZK posted negative numbers in terms of free cash flow. Since 2012 the company has been very stable financially. The last year shows a payout ratio of 16.5%. This gives plenty of room for Bank OZK’s board of directors to raise the dividend.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free dividend reinvestment calculator.
Good investing,
Robert
