U.S. markets close in 1 hour 43 minutes

Top Picks 2020- Bank OZK OZK

Bank OZK (OZK) is a top pick for income investors from the financial sector — where higher yields are difficult to find, suggests Ben Reynolds, dividend specialist and editor of editor of Sure Dividend.

Among the biggest U.S. bank stocks, many such as JPMorgan Chase (JPM), Citigroup (C), and Bank of America (BAC) have dividend yields between 2%-2.6%.

See also: Top Picks 2020: BG Staffing (BGSF)

It also offers very strong dividend growth — the company has increased its quarterly dividend in each of the last 37 quarters. The most recent quarterly dividend of $0.25 per share was increased 19% from the same quarter last year.

Another advantage is that Bank OZK has more room to grow than the mega-cap bank stocks. Bank OZK has a market capitalization of $4 billion. Its service territory mainly includes Florida, North Carolina, Georgia, Arkansas and Texas, but it also has locations in five other states.

Bank OZK has a very strong history of growth, compounding earnings at a 22% annual rate from 2009 to 2018. The bank has generated strong growth due to a combination of organic and acquired growth. 

Even in a challenging environment for banks this year, with interest rates on the decline throughout 2019, Bank OZK has still generated growth. Over the first three quarters of 2019, diluted earnings per share increased 7.2% from the first nine months of 2018.

See also: Top Picks 2020: Cisco Systems (CSCO)

While valuations have increased across the financial sector, Bank OZK remains a modestly valued stock. Shares trade for a price-to-earnings ratio of 9.

Bank OZK is a smaller regional bank, and it is a more attractive choice for income investors as it offers a 3.1% dividend yield.

We believe the valuation could expand in 2020, while earnings and dividend should continue to grow. As long as the U.S. economy avoids recession, Bank OZK could be among the top financial stocks to buy for 2020.

More From MoneyShow.com: