Results from the big banks have the financial sector on the cusp of a correction. The news isn't bad, but strengths were priced into the market, setting it up for a healthy and needed reset. The takeaway from the data is that business remains sound, the consumer is resilient and cash flow is ample. 

What this means for the smaller regional banks is the same, and with the FOMC set to start cutting rates this year, they may see business accelerate by year-end. 

In this light, today's correction is tomorrow's buying opportunity, and there are capital returns to consider. These stocks trade at values relative to the broad market and the sector while paying 3.25% to 4.3% in yield. 

Bank OZK: An aggressive dividend-growing stock

Bank OZK (NASDAQ: OZK), formerly known as Bank of the Ozarks, is a Little Rock-based financial institution serving retail and commercial clients in the region. The company is among the lower-valued bank stocks trading 8x earnings and among the most aggressive dividend growers. 

This company has increased its annual payment for 26 years and runs a 12% CAGR. The aggressive part is that it tends to increase sequentially quarterly, offering a substantial tailwind for the market. The payout ratio is only 25%, so there is cause to believe this trend will continue.  

The analysts' activity is noteworthy. Analysts trimmed their price targets in early 2023 when the banking crisis unfolded, but the action looks like a mere blip on the radar. Since then, analysts have maintained a steady "hold" rating and increased their price targets in Q3 and Q4. The consensus is now above its level at the start of 2023, suggesting upward pressure for the stock price, although it is trading in alignment with consensus now. 

Highlights from the Q3 release include a 10% credit reserve build, above consensus NII, and better-than-expected earnings aided by lower costs. Loans were up 7% for the quarter, and Q4 should be the strongest of the year. Analysts have been upping their estimates for Q4, but the bar is still low. Contrary to current trends and industry results, the consensus figure expects only 10% growth. 

Valley National Bancorp has a solid 4% yield

Valley National Bancorp (NASDAQ: VLY) is a regional operator based in New York. The stock is capitalized at over $5 billion and comes with a 4.3% yield, with shares trading near the middle of the multi-year range. The payout isn't growing like Bank OZK, but it has been steady and stable for nearly a decade and comes with an equally low payout ratio and reliability outlook. 

Revenue and earnings are contracting at the end of F2023 and should contract in the first half of this year, but a trough is in sight. Growth should resume by the end of the fiscal year and help sustain the capital return outlook.

Analysts are less favorable toward this stock than OZK, but a bottom may be in sight. Sentiment slipped to "hold" from "moderate buy" in 2023, and the consensus price target is falling, but a catalyst may emerge in the Q4 results. Not only has the bar been set low, but turn-around efforts begun at the end of 2022 and early 2023 should begin to show. 

Cadence Bank analysts upping their targets

Cadence Bank (NYSE: CADE) is a regional operator in the southeastern U.S. The company is among the higher-valued banks at nearly 12x its earnings, but it is producing, and the analysts like it. The 12x valuation comes with a 3.3% yield and an outlook for distribution growth that should be affirmed when the company reports Q4 results. As it is, Cadence Bank has made five consecutive annual increases and pays only 35% of its earnings with a return to growth in the forecast. 

Analysts expect Q4 results to be the trough in performance weakness and have set the bar low. That said, the nine analysts tracked by MarketBeat rate this stock a consensus "buy" and started raising their price targets at the end of the year. A price pullback to the $26 level would align the action with the consensus figure; the most recent price target, set in the first week of 2024, is the new high of $35 or about 25% above the current action.