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Bank stocks are considered some of the best options for dividends for a few reasons.
They are typically mature, stable companies with steady cash flows. They also must adhere to strict regulatory standards for holding cash to withstand downturns with plenty of liquidity.
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Banks have slow, steady growth, which tends to moderate the gains in their share prices. With slower rising stock prices, they typically have higher dividend yields, since yields are calculated by dividing the annual dividend by the stock price. The lower the stock price, the higher the yield for a given payout amount.
Large bank stocks get a lot of attention for their dividends, but there are only a couple of large banks in the list of S&P 500 Dividend Kings, which are stocks of companies that have raised their dividends for 50 or more years in a row. There are also few banks in the S&P 500 Dividend Aristocrats® list, which are stocks with 25 years in a row or more of dividend increases (the term Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC).
There are only a handful of banks in the S&P High Yield Dividend Aristocrats Index, which features stocks from the S&P Composite 1500 with 20 or more years of annual dividend raises. One of them is Bank OZK (NASDAQ: OZK), which used to be known as Bank of the Ozarks.
The large banks have more stringent regulatory standards than many smaller regional and community banks, so they were barred from raising their dividends during the COVID-19 crash. Some held their dividends in check, but many had to reduce them.
But Little Rock, Arkansas-based Bank OZK, the 52nd-largest U.S. bank with $41.7 billion in assets, is not subject to the same capital requirements as the large banks. Thus, it was able to increase its dividend through the dot-com bear market, the Great Recession, and the COVID-19 crash.
In fact, it has increased its annual dividend for 28 years straight.
But more remarkably, Bank OZK has increased its quarterly dividend for 65 quarters in a row. That means it has raised its dividend every quarter for the past 16-plus years. The most recent increase came last week when it raised its dividend to $0.49 per share.
Bank OZK stands alone among banks, and probably most other dividend stocks, in its consistency.
In addition to its streak of regularly increasing its dividends, it pays out a dividend yield of 4.2%, which is one of the highest yields you will find among banks.
Its sustainability is likely based on its low payout ratio of just 30%, meaning that just 30% of its earnings go toward its dividend. That also indicates that even if it has a difficult quarter where earnings take a hit, it has plenty of leeway to keep raising or maintaining its dividend.
Another major sign of its ability to maintain its dividend consistency is its $1.55 billion in cash and record $19.7 billion in primary and secondary liquidity. That includes $1.5 billion in cash, $3.2 billion in unpledged investment securities, $8.3 billion of available Federal Home Loan Bank (FHLB) borrowing capacity, $5.4 billion of Federal Reserve discount window borrowing availability, and $1.2 billion of available unsecured lines of credit.
In the second quarter, its common equity tier 1 (CET1) ratio, which regulators use to measure a bank's capital strength, rose to 11.8%, up from 11.6% in Q1. The regulatory minimum to be considered well-capitalized is 6.5%.
It all adds up to a fantastic dividend stock that is poised to maintain its status as one of the most consistent and reliable dividend stocks among banks.
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Bank OZK Boosted Its Dividend and Is Poised to Keep Raising It was originally published by The Motley Fool
