Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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
Headquartered in Little Rock, Bank OZK (OZK) is a Finance stock that has seen a price change of 35.96% so far this year. The bank is currently shelling out a dividend of $0.45 per share, with a dividend yield of 2.96%. This compares to the Banks - Northeast industry's yield of 1.73% and the S&P 500's yield of 1.88%.
Looking at dividend growth, the company's current annualized dividend of $0.92 is up 15.7% 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 13.81%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 26%, meaning it paid out 26% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, OZK expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.48 per share, which represents a year-over-year growth rate of 7.41%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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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