Bank of America Corporation (NYSE:BAC) stock is about to trade ex-dividend in four days. If you purchase the stock on or after the 3rd of September, you won’t be eligible to receive this dividend, when it is paid on the 25th of September.
Bank of America’s next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.72 per share. Looking at the last 12 months of distributions, Bank of America has a trailing yield of approximately 2.7% on its current stock price of $26.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Bank of America
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That’s why it’s good to see Bank of America paying out a modest 34% of its earnings.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
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Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That’s why it’s comforting to see Bank of America’s earnings have been skyrocketing, up 38% per annum for the past five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Bank of America has delivered 34% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
From a dividend perspective, should investors buy or avoid Bank of America? Companies like Bank of America that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term – as long as it’s done without issuing too many new shares. Overall, Bank of America looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Ever wonder what the future holds for Bank of America? See what the 18 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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