Bank of America boosted its dividends by 50% to $0.08 after it cleared the Fed’s 2016 stress tests in June. It will also buy back stock worth $5 billion over 12 months beginning in 3Q16. Bank of America failed three times on five earlier stress tests, the worst record among major US banks (XLF). Unlike many of its peers that have raised their dividends annually since 2011, Bank of America has boosted its quarterly payout only once, in 2014. Bank of America (BAC) has been under pressure to increase its dividend payout for some time now. Its banking peers (WFC) have already restored their dividends to pre-recession levels, but Bank of America has a long way to go. Its current dividend of $0.08 is much lower than $0.64 before the crisis. Bank of America’s payout ratio is expected to rise to 49% from 36%.
Over the next 12 months, Bank of America plans to return $8 billion in capital to shareholders including $3 billion in dividends. Such large-scale share repurchase plans reflect the company’s confidence in its current valuations as well as long-term prospects. While the magnitude of Bank of America’s capital plan is on par with peers Citigroup (C) and JPMorgan (JPM), its dividend yields remain significantly lower.
During the quarter, the company repurchased $1.4 billion in common stock and paid $0.8 billion worth of dividends to its shareholders.