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Bank of America Corporation (NYSE: BAC) has announced that it will increase its dividend on September 24 to US $ 0.21. The announced payout will bring the dividend yield to 1.9%, which is in line with the industry average.
See our latest analysis for Bank of America
Bank of America Profits Easily Cover Distributions
While it’s always good to see a solid dividend yield, we also need to consider whether the payout is achievable. Bank of America earns easily enough to cover the dividend, but is held back by poor cash flow. As the company does not provide cash, payment to shareholders will inevitably become difficult at some point.
Going forward, earnings per share are expected to grow 4.2% over the next year. Assuming the dividend continues on recent trends, we think the payout ratio could reach 30% by next year, which is in a fairly sustainable range.
Bank of America has a strong balance sheet
The company has a long history of paying stable dividends. Since 2011, the dividend has increased from US $ 0.04 to US $ 0.84. This works out to a compound annual growth rate (CAGR) of around 36% per year over that time period. It is good to see that there has been strong growth in dividends and that there have been no cuts for a long time.
The dividend seems likely to increase
Investors who have held shares of the company for the past several years will be pleased with the dividend income they have received. It is encouraging to see that Bank of America has increased its earnings per share by 16% per year over the past five years. A low payout rate and decent growth suggest that the company is reinvesting well and that it also has enough margin to increase the dividend over time.
In summary
Overall, we still love to see the dividend go up, but we don’t think Bank of America will make a great income headline. With no cash flow, it’s hard to see how the business can support the payment of a dividend. We would be a little cautious if we were relying on this security primarily for dividend income.
Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. However, there are other things for investors to consider when analyzing the performance of stocks. Taking the debate a little further, we identified 1 warning sign for Bank of America that investors need to be aware of moving forward. We have also set up a list of global stocks with a solid dividend.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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