Bank of the Ozarks OZRK announced a 2.7% hike in its quarterly cash dividend. The new dividend of 19 cents per share will be paid on Jan 26 to shareholders on record as of Jan 19.

This is the 30th consecutive quarterly increase in dividend by the bank. Based on yesterday’s closing price of $48.39 per share, the dividend yield is 1.57%.

Given a solid capital and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.

However, is it worth considering Bank of the Ozarks stock, for earning this dividend income?

Let’s delve deeper into its financial performance and fundamentals to understand the risk and reward.

Revenues: The company has been involved in de novo branching strategies as well as acquisitions for the last few years. Driven by these, its revenues have increased at a CAGR of 31.2% over the last five years (2012-2016). Moreover, its projected sales growth of 35.1% and 13.7% for 2017 and 2018, respectively, ensures the continuation of uptrend in revenues.

Earnings: Over the last three-five years, the company has witnessed earnings per share (EPS) growth of nearly 26%, more than the industry average of 9.6%. Also, it is expected to deliver strong earnings performance as indicated by its projected EPS growth of 14.5% and 13.6% for 2017 and 2018, respectively.

Leverage: Bank of the Ozarks displays strong financial leverage. Its debt/equity ratio of 0.07 compares favorably with the industry average of 0.31, indicating a lower debt burden relative to the industry.

Return on Equity (ROE): The company’s ROE of 11.85% is higher than the industry average of 8.40%. This reflects that it is more efficient in utilizing shareholder funds compared to its peers.

Expenses: Over the last four years (2012–2016), the company’s expenses have witnessed a CAGR of 22.3%. Moreover, as the company continues to expand inorganically and as a result of opening branches in newer areas, overall costs are expected to remain elevated in the quarters ahead. Higher costs might hurt bottom-line growth, going forward.

Valuation: Bank of the Ozarks’ stock looks overvalued based on its price-to-book (P/B) and price-to-cash flow (P/CF) ratios. The company currently has a P/B ratio of 1.88 and a P/CF ratio of 19.48, which is above the industry average of 1.49 and 16.04, respectively.

Share Price Movement: The company’s price performance does not look impressive. Its shares have lost 9.9% in the past year against 0.7% growth for the industry it belongs to.

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Our Take

While elevated expenses and a stretched valuation make us a little apprehensive about the stock, we believe that it is a wise idea to add the stock to your portfolio now given its solid earnings and sales growth prospects, lower debt burden and superior ROE.

Moreover, its Zacks Consensus Estimate for 2018 earnings has also been revised 1.8% upward over the last 30 days. Thus, the stock currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

A few other stocks in the same space worth considering are First Community Corp. FCCO, Synovus Financial Corp. SNV and Carolina Financial Corp. CARO.

The Zacks Consensus Estimate for First Community Corporation has increased 7.6% for 2018, in the last 30 days. The company’s share price has increased 25.1% in the past year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Synovus Financial witnessed a marginal upward earnings estimate revision for 2018, in the last 30 days. Its share price has risen 14.8% in the past year. It currently carries a Zacks Rank of 2.

Carolina Financial also carries a Zacks Rank #2. Its shares have gained 19.6% in a year and its earnings estimates have remained stable for 2018, in the last 30 days.

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