Bank of America (BAC) is a multinational financial services company.
The firm offers a range of banking and financial products through its subsidiaries. I am bullish on the stock. (See Insiders’ Hot Stocks on TipRanks)
Dividends & Stock Buybacks
After beating its earnings estimate, Bank of America announced a $0.21 per share quarterly dividend in line with its previous dividend. The bank did, however, announce a $25-billion stock repurchasing program; $14 billion in stock has already been repurchased under the program.
Bank of America’s dividend payout ratio of 22.5% is 11.4% lower than its five-year average, and its dividend coverage ratio also exceeds its 5-year average by 11.4%.
As for stock repurchases, with a cash per share ratio of 34, it’s not going to take much of the firm’s liquidity to repurchase $25 billion in shares.
Value Drivers
Bank of America’s top-line earnings sustainability can’t be questioned. It currently holds one of the best loan portfolios in the business, with 51% of its revenue being derived from it.
The past 20 months have been difficult for loan originators, but rising treasury yields are well underway amid anticipated asset tapering in 2022. Rising yields allow banks to charge additional premiums to their loans, which is good news to Bank of America beneficiaries, combined with an anticipated GDP spike.
A large part of banking stocks’ performance is bound to its stress test.
In June, Bank of America managed to pass its stress test with flying colors posting a Tier 1 capital adequacy ratio of 11.5%, 7% above the threshold.
Passing the stress test by such a substantial amount means the firm’s financial stability is strong, and added risk will lead to more upside than downside.
Technicals
Banking stocks usually correlate with the 10-year yield, and Bank of America stock is no different. As the yield is anticipated to rise into 2022 due to asset tapering, Bank of America’s stock should rise as well.
The stock is trading above its 10-, 50-, 100-, and 200-day moving averages, indicating that momentum is well on its way.
Wall Street’s Take
According to Wall Street, the stock is a Moderate Buy. There have been nine Buy ratings, four Hold ratings, and one Sell rating assigned to the stock in the past three months.
The average Bank of America price target of $47.61 implies 0.3% upside potential.
Concluding Thoughts
Bank of America shareholders will benefit from its attractive shareholder compensation program. The stock’s technical levels also suggest that a lucrative opportunity is on display.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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