Bank of America Corporation (NYSE:BAC) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of September to $0.22. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.
Bank of America's Dividend Forecasted To Be Well Covered By Earnings
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.
Bank of America has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 26%, which means that Bank of America would be able to pay its last dividend without pressure on the balance sheet.
The next 3 years are set to see EPS grow by 44.1%. Analysts forecast the future payout ratio could be 24% over the same time horizon, which is a number we think the company can maintain.
Bank of America Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.04 in 2012, and the most recent fiscal year payment was $0.88. This works out to be a compound annual growth rate (CAGR) of approximately 36% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Bank of America has been growing its earnings per share at 13% a year over the past five years. Bank of America definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Bank of America Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Bank of America that investors need to be conscious of moving forward. Is Bank of America not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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