E Bank OZK: This Dividend Stock Is Undervalued

Investors looking for undervalued dividend stocks should take a closer look at the regional banks. An often-overlooked industry, many high-quality regional banks offer their shareholders strong dividends with growth potential.

For these reasons, Bank OZK (OZK) is a cheap bank stock with a hefty 3% dividend yield. It is one of the best dividend stocks to buy right now.

Bank On Steady Growth From OZK

Bank OZK, previously called Bank of the Ozarks, is a regional bank. This means it is a smaller financial institution than the big U.S. banks like JP Morgan Chase and Wells Fargo. It also means OZK operates in a particular segment of the country. In this case, OZK has operations primarily on the coasts and the south. Bank OZK offers traditional banking services including checking, business banking, commercial loans, and mortgages. The stock has a market capitalization of $4 billion.

Bank OZK is a very well-run bank, with a long history of steady growth since the Great Recession of 2008-2009 came to an end. OZK reported record net interest income in 17 of the last 20 quarters. Rising net interest income is the main profit engine for a bank, as it represents the spread between interest collected on loans and investments versus interest paid out to depositors.

On April 17th, 2019 Bank OZK reported operating results for its 2019 first quarter. For the quarter, total interest income increased 15% from the same quarter last year. However, net income fell 2.2% to $110.7 million, as expenses grew faster than revenue.

Earnings-per-share came in at $0.86, a 2.3% decline compared to $0.88 in the year-ago period. Returns on average assets, stockholders’ equity, and tangible equity all declined modestly in the 2019 first quarter. Still, total loans increased by 5.2% while tangible book value increased by 22% to $24.73 per share.

OZK is expected to grow its EPS by 8% over the next five years, fueled by loan growth. Rising interest rates would be an added catalyst, although the Federal Reserve has at least temporarily put further interest rate increases on hold. Fortunately, continued GDP growth in the United States is a tailwind for the banking industry in general, and in particular regional banks.

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