Portfolio Update
The FiveTwenty portfolio received $85.15 in dividends in the past week. T and GD paid their quarterly dividend during the week.
| Past Week Dividend | $85.15 |
| Current Quarter Dividend (Q3 2021) | $121.15 |
| LifeTime Dividend | $626.49 |
| Estimated Annual Dividend | $2,344.91 |
The capital allocation for the week of 08/08/2021 to 08/14/2021 will be used to establish a position in Bank OZK (NASDAQ: OZK)
OZK – Company Profile
Bank OZK (OZK) provides retail and commercial banking services. As of June 30, 2021 the company operated 250 offices in Arkansas, Georgia, Florida, North Carolina, Texas, South Carolina, California, New York, and Mississippi. Official Site | Wikipedia
| Dividend Streak | 25 years |
| Yield | 2.59% |
| Payout Ratio | 27.5% |
| P/E | 10.22 |
Financials
Does OZK have the financial means to sustain and raise its dividend going forward?
Over the last decade, OZK has steadily grown revenue from $316 million to $1.185 billion, a CAGR of 15.82%. Net income increased from $101 million in 2011 to $426 by 2019, a CAGR of 19.71%, before declining steeply to $292 million in 2020. The company’s financial performance in H1 2020 experienced a significant negative impact due to the economic slowdown caused by the COVID-19 pandemic. Net income saw an outsized impact due to the substantial build of allowances for credit losses (ACL).
In the last 10 years, OZK’s EPS have show a similar trend to net income. EPS grew from $1.47 in 2011 to $3.30 by 2019, a CAGR of 10.64%, before decreasing to $2.26 in 2020.
The average dividend per share growth rate was 21.60% per year in the past 10 years and 14.90% per year in the past 3 years. (per GuruFocus) OZK has managed this exceptional growth while maintaining a modest an relatively stable payout ratio. Excluding the 2 outlier year at the beginning and end of the decade the payout ration has stayed between 20% and 30% of EPS.
OZK in 2021 and beyond
For the first 6 months of 2021, OZK posted net income of $299 million, a 381% increase form $62.1 in for the same period of 2020. EPS were $2.30 per share compared with $0.48, a 379% increase. Furthermore, the net income and net interest income for Q2 2021 were record highs for the company.
Overall, the company has benefitted from the improving economy and financials have recovered nicely from the dismal results in H1 2020.
Valuation
Are we paying too much for OZK at the current share price?
In the last 10 years, OZK’s P/E ratio saw a low of 6.12 and a high of 27.9, with a median value of 14.87. (per GuruFocus) The current TTM P/E ratio of 10.22 is materially below the historical median.
The current share price of $43.16 is 3.5% above the 50-day moving average and 14.9% above the 200-day moving average. Additionally, the share price is near the 95th percentile of the 52 week trading range.
Following a step runup from the beginning October 2020 to mid March 2021 during which time the share price doubled, OZK has pretty much traded flat. Additionally, strong earnings for the last 4 quarters has resulted to a very attracted P/E valuation for the company.
Yield
How does the current dividend yield for OZK compare to historical values?
In the last 10 years, the dividend yield for OZK has been in a range of 0.98% to 6.3%, with a median of 1.42%. (per GuruFocus) The current TTM yield of 2.59% is considerably higher than the historical media even if it is nowhere close to its all time high.
At the current dividend yield OZK provides an appealing entry point.
Thesis
Why are we adding OZK to the FiveTwenty portfolio?
OZK has a 25 year track record of increasing dividends. Furthermore, over the last decade it has managed impressive rates of growth for revenue, net income, and EPS. This has allowed the company to increase dividend payouts at an exceptional rate with virtually no expansion of its payout ratio.
With a current payout ratio of < 30%, we there should be no risk of a dividend cut in the near future. Additionally, with the latest financial results continuing to show a robust growth trajectory for the company we expect the dividend growth to continue as well.
Additional Research
Photo by Jonathan Cooper on Unsplash
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