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Are Bank of America’s Payouts Rising?

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Dividend payouts

Bank of America (BAC) and other financial giants will likely benefit from the proposed repeal of the Dodd-Frank Act as well as from other reforms being reviewed by Trump administration. The bank paid a dividend of $0.075 in 1Q17, following its approval in stress tests. The payout translated into a yield of 1.26%.

Bank of America had previously failed three out of five stress tests, offering the worst performance among major US commercial banks (XLF).

The bank’s dividend payouts depend heavily on stress tests. The bank’s major competitors have following yields:

  • JPMorgan Chase (JPM): 2.3%
  • Citigroup (C): ~1.1%
  • Wells Fargo (WFC): ~2.8%
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Repurchases continue

Bank of America has responded to pressures from investors for higher payouts by increasing its repurchase program to $4.3 billion, accounting for ~2% of its total market capitalization. These repurchases will be subject to liquidity position, operating performance, attractive stock offerings, and alternative uses of capital.

In 1Q17, Bank of America paid $2.3 billion in repurchases and $0.8 billion in dividends, as compared to its net income of $4.35 billion during the same quarter. The payout ratios are expected to be higher in coming quarters as investors continue to demand substantial payouts, which the bank has failed to make over the past few years.

In the next part of this series, we’ll examine BAC’s operating margins.

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