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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 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) is in the Finance sector, and so far this year, shares have seen a price change of 37.61%. The bank is currently shelling out a dividend of $0.28 per share, with a dividend yield of 2.58%. This compares to the Banks - Northeast industry's yield of 2.03% and the S&P 500's yield of 1.45%.
Looking at dividend growth, the company's current annualized dividend of $1.11 is up 3% from last year. In the past five-year period, Bank OZK has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.45%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Bank OZK's current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.
OZK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $3.29 per share, which represents a year-over-year growth rate of 45.58%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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