Bank Of The Ozarks - Dividend Stock Analysis

Linked here is a detailed quantitative analysis of Bank Of The Ozarks (OZK). Below are some highlights from the above linked analysis:

Company Description: Bank of the Ozarks owns Bank of the Ozarks, which provides retail & commercial banking products and services mainly in the southern United States.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value; see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

OZK is trading at a discount to only 4.) above. When also considering the NPV MMA Differential, the stock is trading at a 21.6% discount to its calculated fair value of $66.36. OZK earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section, there are three possible Stars and three key metrics; see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

OZK earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45% OZK earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1997 and has increased its dividend payments for 28 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

OZK earned a Star in this section for its NPV MMA Diff. of $1,831. This amount is in excess of the $700 target I look for in a stock that has increased dividends as long as OZK has. If OZK grows its dividend at 8.6% per year, it will take 1 years to equal a MMA yielding an estimated 20-year average rate of 3.75%. OZK earned a check for the Key Metric 'Years to >MMA' since its 1 years is less than the 5 year target.

Peers: The company's peer group includes: Southside Bancshares, Inc. (SBSI) with a 4.5% yield, Community Trust Bancorp, Inc. (CTBI) with a 2.8% yield, and Regions Financial Corporation (RF) with a 3.6% yield.

Conclusion: OZK earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section, and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks OZK as a 5-Star Very Strong stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $72.70 before OZK's NPV MMA Differential decreased to the $700 minimum that I look for in a stock with 28 years of consecutive dividend increases. At that price the stock would yield 2.6%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $800 NPV MMA Differential, the calculated rate is 5.3%. This dividend growth rate is below the 8.6% used in this analysis, thus providing a margin of safety. OZK has a risk rating of 1.5 which classifies it as a Low risk stock.

Bank OZK is a bank holding company with operations in Arkansas, Georgia, Florida, North Carolina, Texas, California, New York, and Mississippi. OZK has a history of raising its dividend every quarter. The stock is trading significantly below my calculated fair value of $66.07, and has good dividend metrics, including its free cash flow payout at 30% (up from 26%), and Debt to Total Capital of 12% (down from 18%). I will consider initiating a position in OZK in the future.