A 9% dividend increase was announced by Bank of America. The ex-dividend date for the stock is August 31 and the holder of record date is September 1. When government yields recently soared (i.e., their prices fell), it raised doubts about banks' balance sheets and caused the company's stock to plummet. In principle, this is not an unreasonable fear to have given that BAC has over $106 billion in unrealized securities losses.
The level of worry, though, might be a little exaggerated. Despite having a large number of unrealized losses, Bank of America has adequate liquidity. Even after bringing them down to fair value, its highly liquid assets still account for around 50% of its deposit base. In other words, the bank could withstand the sudden withdrawal of 50% of its deposits. Furthermore, the bank's liquidity coverage ratio is 119%, exceeding the required level of 100%.
Bank of America is a strong bank with a fair valuation. It is making significantly more money than it requires to keep paying dividends and increasing them. While the overall picture appears to be quite enticing so far, investors must be aware of a number of risks and difficulties, including a recession and an inverted yield curve.
In the yield curve, banks borrow on the short end and lend on the long end. Inverse yield curves hence have a tendency to reduce their margins. Bank of America hasn't yet experienced this in this year, although several smaller banks did when their customers withdrew money to invest in treasuries earlier in the year. These “black swan” situations compel banks to increase savings/CD interest rates, which lowers their margins.
Numerous economists predict a recession for the upcoming year. Although there is less agreement now than there was early in the year that a recession is impending, many analysts still hold this view. If that happens, BAC's earnings will likely decrease because bank earnings often decrease during recessions.
In light of the dangers and difficulties mentioned above, I believe that Bank of America stock is still a good investment for consistent dividend payment in the years to come.
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