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Repurchases Expected to Rise for BAC in 2018

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May. 8 2018, Updated 8:01 a.m. ET

Shareholder payouts

Bank of America (BAC) raised its dividend to $0.12 in 3Q17 following its passing of stress tests in 2017. Banks (XLF) have benefited from lower taxes resulting in better capital adequacy and higher allocation toward shareholder payouts. However, a major portion of these payouts are expected to be allocated toward repurchases in 2018. Major banks such as Citigroup (C), JPMorgan Chase (JPM), and Goldman Sachs (GS) have enhanced their repurchase programs amid record profits due to lower taxes.

Bank of America’s dividend payout of $0.12 translates into an annualized yield of 1.6%, lower than the yields of 1.8%–2.0% offered by other banks.

Its competitors’ yields are as follows:

  • JPMorgan Chase (JPM): 2.0%
  • Citigroup (C): 1.8%
  • Wells Fargo (WFC): 3.1%

This year, Bank of America is expected to return $24 billion to shareholders in the form of dividends and share repurchases. In 1Q18, its shareholder payouts totaled $6.1 billion.

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Repurchases for higher RoE

Banks have focused on investments in technology to penetrate and widen core banking, trading, and wealth management services. These investments are being managed via ongoing cash flow generation. The surplus funds are being utilized to an extent for repurchases in order to improve ROE (return on equity) and, by extension, valuations.

Bank of America’s repurchases increased to $4.9 billion in 1Q18, forming 80% of total payouts. The bank’s average number of diluted shares fell to 10.5 billion from 10.6 billion in 4Q17.

Bank of America’s leverage has remained largely stable, with its total debt at $232 billion as of March 31. In comparison, its total shareholders’ equity stood at $266 billion.

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