Key Points
- Large banks recently underwent the government’s stress test to ensure financial system resilience.
- After passing, most major banks announced sizable dividend increases.
- Bank of America has, for now, opted not to raise its dividend.
Like all of the large banks that underwent the Federal Reserve’s bank stress test, Bank of America (NYSE: BAC) passed. While its peers—such as Goldman Sachs (NYSE: GS), which raised its dividend by 11%, and Citigroup (NYSE: C), which increased its dividend by 12%—have added shares to their payout, Bank of America has held its dividend steady. Investors can expect a hike in the near future.
Bank of America: Timing and Strategy
Historically, Bank of America has announced dividend increases in the third quarter, aligning these statements with the release of its second‑quarter earnings. With the next earnings report due in a matter of weeks, the bank’s management appears to be following its standard communication schedule rather than responding to the timing of the stress‑test results.
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The decision to postpone a dividend increase does not signal any fundamental distress. The key question is the magnitude of the eventual hike. Historically, Bank of America’s last two dividend increases were 8% and 7%, comfortably above the inflation rate of roughly 3%. While a larger increase is anticipated, it is unlikely to be dramatically higher than prior additions.
Valuation Insights
Bank of America’s price‑to‑earnings (P/E) and price‑to‑book (P/B) ratios are lower than those of JPMorgan Chase (NYSE: JPM) and Goldman Sachs, positioning it as a value play within the banking sector. Its P/E is also lower than Citigroup’s, despite a higher P/B ratio, underscoring its attractive valuation relative to peers—particularly when Citigroup’s shares have risen 60% over the past year compared to Bank of America’s 20%.
While a dividend increase alone may not immediately narrow the valuation gap, it offers long‑term rewards for investors and encourages a longer holding horizon as the market converges. With a roughly 2% dividend yield that exceeds many peers, income‑focused investors should monitor Bank of America closely ahead of the forthcoming earnings release.
Considerations Before Investing
Investors should assess Bank of America’s earnings growth prospects and dividend policy before adding the stock to their portfolio. The bank is currently outside the top-tier recommendations of the Motley Fool Stock Advisor’s latest “top 10” list, but its value metrics warrant a careful review for those seeking a longer‑term investment.