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 2.), 3.) and 4.) above. When also considering the NPV MMA Differential, the stock is trading at a 36.1% discount to its calculated fair value of $64. 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 26 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 $3,363 This amount is in excess of the $900 target I look for in a stock that has increased dividends as long as OZK has. The stock's current yield of 3.84% exceeds the 3.75% estimated 20-year average MMA rate.
Peers: The company's peer group includes: Southside Bancshares, Inc. (SBSI) with a 4.6% yield, Community Trust Bancorp, Inc. (CTBI) with a 4.6% yield and Regions Financial Corporation (RF) with a 4.8% 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 $66.42 before OZK's NPV MMA Differential decreased to the $900 minimum that I look for in a stock with 26 years of consecutive dividend increases. At that price the stock would yield 2.4%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $900 NPV MMA Differential, the calculated rate is 5.6%. This dividend growth rate is below the 10.3% used in this analysis, thus providing a significant 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 wiith 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 $64.00, and has good dividend metrics, including its free cash flow payout at 22%, and Debt to Total Capital at 14%. I will continue to add to my position in ahile the stock is performing strongly and my allocation allows.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in OZK (0.4% of my Dividend Growth Portfolio)and long CTBI.
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