Bank of America Corporation (NYSE: BAC) continues to be a reliable choice for income-seeking investors. The recent announcement of a $0.24 dividend on September 29th, representing a year-over-year increase, brings the dividend yield to a respectable 3.4%, in line with industry averages. But what makes Bank of America an attractive dividend stock goes beyond just the yield.
Bank of America boasts a consistent dividend track record, having paid dividends for nearly a decade. Notably, its dividend has steadily increased over the years. After a modest $0.04 per share in 2013, the most recent fiscal year's dividend payout reached $0.96 per share.
This impressive growth of 37% annually reflects a commitment to returning value to shareholders, making it an appealing choice for income investors who value long-term dividend growth.
A critical factor in evaluating a dividend stock is its ability to sustain dividend payments without straining its finances. Bank of America appears to have this covered. According to its recent earnings report, the bank maintains a payout ratio of just 25%. This indicates that it can comfortably cover its dividend obligations without jeopardizing its financial stability.
Looking ahead, Bank of America's prospects remain promising. Although there is a projected 4.8% dip in earnings per share (EPS) over the next three years, experts anticipate the payout ratio to rise slightly to 34% during the same period. This increase in the payout ratio, combined with the bank's history of responsible dividend management, suggests that Bank of America has room to continue raising its dividend in the future.
A company's ability to generate profits and sustain dividend payments is crucial. Fortunately, Bank of America demonstrates sound financial health. Its profits easily cover distributions, providing reassurance to investors that their dividend income is secure.
One encouraging sign for investors is Bank of America's consistent growth in earnings per share over the past five years, with a 13% increase. This growth, coupled with the relatively low current payout ratio, suggests that the bank is reinvesting in its business effectively and has the potential to further increase its dividend payments in the coming years.
Conducting a comprehensive analysis, which takes into account factors like fair value estimates, insider transactions, and overall financial health, is advisable before making any investment decisions in Bank of America or any other stock.