OZKAP - Bank OZK: Preferred Shares Offer Decent Upside Before Fed Rate Cuts

2025-04-28 13:28:37 ET

Summary

• Bank OZK is a U.S. regional bank with 73% of the loan portfolio allocated to real estate financing.
• Preferred dividends were well-covered by net income in 2024 and Q1 2025. Likewise, preferred equity enjoys a substantial common equity buffer.
• Fed rate cuts should result in incremental capital gains, supplementing the already attractive ~7% current yield.
• Investors more optimistic about the real estate sector may consider Bank OZK's common stock, which trades at a discount to U.S. regional banks.
• Bank OZK's focus on real estate financing, together with the non-cumulative nature of preferred dividends, results in a higher risk of missed dividends relative to more diversified banks.

Introduction

So far in 2025, Bank OZK ( OZK )'s 4.625% fixed-rate preferred shares ( OZKAP ) have outperformed the iShares Preferred and Income Securities ETF ( PFF ), delivering a total return of ~6%:

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