Inside Bank of America’s Shareholder Value Strategy




Bank of America (BAC) has regularly rewarded its shareholders through dividends and share buybacks. In 1Q16, it announced a dividend of $0.05 per share, which is flat on a quarterly and year-over-year basis. This translates to a dividend yield of 1.4% on an annualized basis based on closing price of $14.42 on June 5.

The company’s dividend yield is much lower than other banking players, which together constitute 48% of the Financial Select Sector SPDR ETF (XLF). In 1Q16, the company repurchased $1 billion in common stock and paid $0.5 billion in dividends to its shareholders.

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Share repurchase plans

Bank of America (BAC) increased its share repurchase authorization by $800 million in March 2016 reflecting the company’s confidence in its current valuations as well as long-term prospects. This is in addition to its existing $4-billion-dollar share repurchase plan, which it announced in March 2015, and is likely to be further topped with additional buybacks in June, after the CCAR (comprehensive capital analysis and review) results for 2016 are published.

This share buyback plan will be neutral in effect to the value of shares for current investors. But it could be seen as a signal that Bank of America has sufficient cash to raise dividends or expand its share repurchase program once the CCAR process is complete.

Meanwhile, JPMorgan Chase (JPM) also announced increased its share buyback by nearly $1.9 billion. Other peers expanding their share buyback programs in the past few months include Capital One Financial (COF), which added $300 million to its buyback plan in February, and Wells Fargo (WFC), which expanded its buyback plan by $17 billion in January.

Continue to the next part for a look at analyst recommendations.


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