All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Bank OZK in Focus
Based in Little Rock, Bank OZK (OZK) is in the Finance sector, and so far this year, shares have seen a price change of 28.6%. The bank is paying out a dividend of $0.23 per share at the moment, with a dividend yield of 3.13% compared to the Banks - Northeast industry's yield of 1.89% and the S&P 500's yield of 1.91%.
Looking at dividend growth, the company's current annualized dividend of $0.92 is up 15.7% from last year. Bank OZK has increased its dividend 5 times on a year-over-year basis over the last 5 years 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, which represents a year-over-year growth rate of 7.72%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious 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).
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