Bank of America Corp. (NYSE: BAC | BAC Price Prediction) is rewarding its shareholders once again with a quarterly dividend of $0.26, payable on Friday, Dec. 27. That is in line with the prior payout. Despite all the recent attention to Warren Buffett trimming his stake, the ongoing dividend payment underscores the management’s commitment to delivering consistent value to investors.
Why Investors Like Dividends
Dividend stocks offer two benefits.
Investors favor dividend stocks for two main reasons. The first is that they offer enticing total return potential. Total return is a comprehensive measure of investment performance that includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. It is one of the most effective ways to boost the prospects of overall investing success.
Dividend stocks can also provide investors with a steady, reliable stream of passive income. Passive income is money that is earned with little to no ongoing effort, usually from assets that generate cash flow. This income can come from a variety of sources, including stock dividends. Generating passive income is a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
A Buffett Pick
Berkshire Hathaway is Bank of America’s largest shareholder.
Though Warren Buffett’s Berkshire Hathaway has long held a notable stake in Bank of America, the firm has been trimming those holdings this year. In fact, Berkshire Hathaway is no longer a beneficial owner, as the stake is now less than 10%. On last look, it owned 775 million shares, which makes it still the bank’s largest institutional holder. Buffett, who is renowned for value investing based on the financial health of a company, first invested in Bank of America in 2011.
Bank of America has increased its dividend annually since 2009. The current dividend yield is 2.3%, which is about the same as the industry average but less than the sector average. For Berkshire Hathaway, that works out to almost $1.0 billion in dividends annually.
The Company
One of the world’s leading financial institutions and a Warren Buffett favorite.
The company provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide.
Its Consumer Banking segment offers traditional and money market savings accounts, certificates of deposit and IRAs, non-interest and interest-bearing checking accounts, credit and debit cards, residential mortgages, home equity loans, and automotive, recreational vehicle, and consumer personal loans.
The Global Wealth & Investment Management segment provides investment management, brokerage, banking, and trust and retirement products and services, as well as wealth management solutions, including specialty asset management services.
The Global Banking segment offers lending products and services, including commercial loans, leases, commitment facilities, trade finance, and commercial real estate and asset-based lending. It offers treasury solutions, such as treasury management, foreign exchange, short-term investing options, and merchant services, as well as working capital management solutions, debt and equity underwriting and distribution, fixed-income and equity research, and certain market-based services.
And its Global Markets segment provides market-making, financing, securities clearing, settlement, and custody services. It offers securities and derivative products, as well as risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income, and mortgage-related products.
Company headquarters are in Charlotte, North Carolina. It was founded in 1784, the first federally chartered joint-stock owned bank in the United States and only the second bank in the country to receive a charter. Now, it competes with or is similar to, among others:
- Citigroup Inc. (NYSE: C)
- JPMorgan Chase & Co. (NYSE: JPM)
- PNC Financial Services Group Inc. (NYSE: PNC)
- U.S. Bancorp. (NYSE: USB)
- Wells Fargo & Co. (NYSE: WFC)
The Republican takeover of Congress and the White House provided a boost to Bank of America stock and those of other big banks, as Wall Street looks forward to less regulation. Bank stocks are expected to be a top play in 2025. However, Bank of America is one of the big banks that the Consumer Financial Protection Bureau (CFPB) is suing over Zelle fraud.
The Stock
Wall Street remains optimistic.
The share price is about 25% higher than five years ago, underperforming the S&P 500 in that time. However, in the past year, the stock is up more than 32%, about the same as the S&P 500. The recent 52-week high of $48.08 per share is less than the $49.13 consensus price target. Analysts anticipate that the share price will rise more than 12% in the next 52 weeks, and 15 out of 22 of them who follow the stock recommend buying shares. Although, Morgan Stanley did recently downgrade the stock to Equal Weight.
Institutional investors hold more than 63% of the shares. Besides Berkshire Hathaway, BlackRock, State Street, and Vanguard have notable stakes. Almost 75 million shares, or about 1% of the float, are held short.
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