Bank OZK's 52-Quarter Dividend Streak: Unwavering Financial Commitment

Summary

• Bank OZK, a regional bank, stands out in the financial sector with its resilience, value, and growth potential.
• The bank's financial metrics, including a low P/E ratio and a 3.5% dividend yield, make it competitive within the industry.
• The company combines strong leadership with responsible lending which makes it a compelling buy at these levels.

Bank OZK

In an era where stock market fluctuations are the norm rather than the exception, a keen investor's eye often seeks refuge in sectors and stocks that stand resilient amidst turmoil. However, resilience, in isolation, isn't enough. There must be inherent value, a promising story of growth, or at the very least, an anticipated reversal of fortunes. This is the story of Bank OZK (NASDAQ:OZK), a First Trust NASDAQ ABA Community Bank Index Fund (QABA) component, and its notable journey.

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Earnings and Valuation: Indications of Future Growth

In the rapidly evolving banking sector, financial reports and quarterly earnings play a crucial role in determining a bank's trajectory. And if Bank OZK's (OZK) recent Q2 earnings are any indication, the future looks promising for this dynamic entity.

Surpassing Analyst Expectations

Bank OZK's latest Q2 figures, unveiled last Thursday, not only surpassed the average analyst estimate but also achieved significant milestones. The company set new records in pre-provision net revenue, loans, and deposits. Specifically, the Q2 EPS stood at a whopping $1.47, eclipsing the consensus of $1.43 and marking an impressive jump from $1.41 in the previous quarter. This is a considerable increase from $1.10 in the same period last year.

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This serves as a continuation of the Bank's recent beats, which is impressive when you consider the turmoil that has hit the industry.

Impressive Financial Metrics

Several figures stand out in Bank OZK's Q2 earnings:

Net Interest Income: The bank reported an impressive $356.8M, comfortably outstripping the consensus $345.4M. For perspective, this is a significant leap from the $344.9M from the prior quarter and a massive jump from $265.8M in Q2 2022.

Pre-provision Net Revenue: Climbing to $259.5M, up from $246.4M in Q1 and a mere $182.8M in Q2 2022.

Loans and Deposits: Total loans have risen to $23.61B as of June 30, 2023, compared to $22.06B at the end of March. Meanwhile, deposits surged to $23.9B from $22.8B within the same period.

Real Estate Specialties Group (RESG) Performance

An integral part of Bank OZK, the RESG, showcased a significant uptick in activity. The group originated a staggering $1.41B of loans during the quarter, totaling $3.22B over the past four quarters. This active performance reflects in the bank's statements, as they've noted a moderate increase in the pipeline of new RESG origination opportunities. This positive momentum has prompted Bank OZK to adjust its outlook. They now anticipate the RESG origination volume for the entirety of 2023 to be "at or somewhat above" the achievements of 2021.

Sequentially, the bank's profits have seen an uptick since Q3 2022, and the annual EPS is predicted to plateau around the $5.60 to $5.70 bracket in the future.

Valuation

Bank OZK isn't just chasing growth; it's achieving it with finesse. With profitability ratios that overshadow its peers, it's poised for a valuation that's both competitive and justifiable within the banking industry.

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The bank is also trading near its book value, suggesting a bargain if you believe the company is anything close to secure.

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This, coupled with a forward P/E that's relatively lower than both sector medians and its historical mean, implies that there is a fair degree of value to be had at current levels.

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While the multiple compression has its reasons, it's evident that Bank OZK is operating at peak performance. The prevailing uncertainty in the banking sector seems to unfairly impact standout performers like OZK. In usual circumstances, savvy investors would gravitate towards such high-quality firms facing undue market pressures. However, as the 2008/09 financial crisis showed, banks can linger at attractive valuations for prolonged periods. This might pave the way for potential market consolidation, which may not always align with the long-term aspirations of visionary shareholders. Consolidation can also reshape the market dynamics for individual players, potentially altering Bank OZK's market stance. Should the economy face significant challenges, strategic mergers might become the order of the day, as industry leaders aim to fortify their positions through diversified portfolios for enhanced resilience.

Loans

Bank OZK's phenomenal loan growth in recent quarters is due to its strong focus on deposit growth, growing its customer base significantly, and mostly organically, locally generated deposits. The bank has been able to maintain roughly the same mix of deposits and has not really increased in percentage terms as a percentage of deposits in any material respect to its reliance on broker deposits over the last several quarters. Bank OZK is also being very conservative on credit quality while putting on really great quality new assets while getting paid well for it. The bank views this as a very opportunistic time for growth.

A True Dividend Aristocrat

It is important to remember that this is a century-old bank, standing tall amidst the winds of economic change, quietly going about its business, yet catching the eyes of dividend-hunters everywhere. Bank OZK is that stalwart institution that has proven to be invaluable from a reliability standpoint, especially if dividends are your thing.

In a recent turn of events, the Board of Directors at Bank OZK decided to send a small but meaningful gift to its shareholders. They've bumped up the quarterly cash dividend on the Bank's common stock by a cent, taking it to $0.36 per share. Now, a $0.01 hike might seem minuscule, but it is important from a symbolic standpoint. This recent announcement means Bank OZK has ramped up its quarterly cash dividend for its common stock for an impressive fifty-two consecutive quarters.

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Experienced investors first tell you that there are not many companies that can both dividend history like the one illustrated in the chart above. This is the product of decades of consideration and deliberate management by the leadership team with shareholders in mind.

The Takeaway

Navigating the tumultuous seas of the stock market, Bank OZK emerges not just as a haven but a growth story worth noting. This financial dynamo has consistently outperformed analyst predictions, boasted formidable financial metrics, and shown a deliberate yet agile loan strategy. Beyond the hard numbers, the bank's unbroken 52-quarter streak of increased dividends underscores its unwavering commitment to shareholders. Amidst sector uncertainties, Bank OZK's tale is a blend of sturdiness, strategic acumen, and a century-old legacy that resonates in every dividend check and balance sheet line. I rate the stock as a long term buy.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of OZK either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[thirdcamper]

Anyone have a sense of why OZK has 11% short interest when it has no HTM securities and its income and earnings are improving?

[Bruce Bohannon]

Collecting my next dividend tomorrow. Also expecting huge option obligations to expire. Fun trading options across earnings when you know a bit about the Business! Huge yty consensus EPS and Revenue numbers tonight.

Thanks for the article.

[47484186]

When the market values a company based on it's industry (banking) rather than its performance (the company) an opportunity may exist. Rather than ask "what should the PE of a bank be", ask "what should the PE of a company growing at 17% annualized for past seven years be?" If you agree with the market the answer is a PE of 6.2 with 11% of the shares shorted. As Bob Uecker might say: "Juuusssttt a little outside" ;-)

[daslkjflskdj]

“Net Interest Income: The bank reported an impressive $356.8M, comfortably outstripping the consensus $345.4M. For perspective, this is a significant leap from the $344.9M from the prior quarter and a massive jump from $265.8M in Q2 2022”

I’m curious how they had a 30% jump in nii when NIM getting squeezed with banks having to pay higher rates to attract capital

[47484186]

Since the begining of 2014, when the stock was priced at $31.75 with earnings of $1.20 and a PE of 26.4, OZK the company has grown earnings to the current $5.30, a CAGR of 16.9%. Dividends have increased steadily from $0.36 to $1.44, a CAGR of 15.7%. Meanwhile the price of OZK the stock has increased from $31.75 to today's $39.25, a CAGR of 2.3%. Do you see anything wrong with this picture?

[tetnanger]

@47484186 With a PE of 26.4 in 2014, the stock was priced much too high for a bank stock. Banks normally trade between 8-12 and so the price moved little as earnings grew over time and the PE fell to levels seen with most bank stocks. What was wrong with the picture has nothing to do with OZK, but everything to do with a market that overvalued its stock.

[47484186]

@tetnanger Yes, I completely agree that the market priced OZK like a growth stock, not a bank stock. And that it currently values it like a bank stock. However what the market forgot is that OZK the company, is actually a growth company increasing both earnings and dividends at more than twice the market rates.
It's also pricing it's debt (OZKAP) at nearly 40% off. We'll see.

[tetnanger]

@47484186 The thing is that it may have been growing then, but it was still a bank stock trading above the PE which is characteristic for the industry. Since bank stocks generally trade at a multiple between 8-12, as earnings went up, the price didn't keep pace and the PE fell to levels consistent with the industry norms. This is another example of reversion to the mean.

[jpv410]

Long term holder and there is alot to like about them. I remember one item that stood out when I did my initial research.
Each asset manager handles 16 loans each, other banks it might be more than 100. Which is a big contributor to hem having a much lower net-charge off ratio than competitors.
Not sure this is still the case, but it just stood out to me as being very practical.

[Tadpoles_UK]

Thanx for the article.
I’m a long-term OZK owner. The bank regularly posts results that can’t be achieved by a vast majority of their competitors. In addition to the solid dividend growth, the shares offer a fine chance to earn extra income via covered call premiums.
During 2022, I sold about 15% of my holdings at $50. When the entire banking industry took a hit during the spring, that provided an opportunity to buy the 15% back at $35. It was no surprise that OZK did not suffer the bond losses and fleeing deposits that other banks did.
My only concern at this point is that 40-year CEO George Gleason is nearing 70 years old. At some point he will retire, and It’s unlikely that his eventual successor will perform as well.

[tetnanger]

Those looking for income might consider OZK's preferred, OZKAP, currently under $15 with a 7.8% yield.

[farmed out]

@tetnanger Indeed, but not just yet..... I want to add to my OZKAP position in the next few days at these cheaper levels!! 😃

[BA Man]

@tetnanger
I’ve been adding a few shares virtually every week, using the dividends coming in from other companies. Almost 40% below the par value paired with the dividend could be setting up for a nice total return.

[tetnanger]

@BA Man I've been adding to other positions but when the price falls below 15 it's really tempting. Unfortunately, there not enough cash to buy everything in the candy store. The only downside with OZKAP is that it's perpetual and so the preferred will trade based solely on interest rates rather than a call date. Still... buying the preferred at about $15 with a ~7.5% yield locked in is a great way to create sleep at night passive retirement income.

[Audit72]

Also interesting is the short duration of its investments - 3.6 years - very low risk of high losses during rising rates. OZK can easily afford to hold to maturity ($10B in liquidity). Many large banks have large unrealized losses in their investments.