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Long-term investors in Bank of America (NYSE:BAC) may find this review and information useful. The following items were reviewed for the 10 years ending December 2001 through 2011

  • Revenue
  • Net income
  • Dividends
  • Share repurchases
  • Long-term debt

The first thing that stands out:

  • The increase in long-term debt
  • The percentage of revenue and net income used to repurchase shares when $0 was spent during the last four years.
  • The number of years of net income in 2011 required to cover the long-term debt.

What happened to long term debt?

It moved higher.

  • 2002: Long-term debt was $ 60.2 billion
  • 2011: Long-term debt was $372.3 billion

Long-term debt increased $312.058 billion or 518%

What happened to revenue?

  • 2002: $34.494 billion
  • 2011: $93.454 billion

How many years of revenue would it take to pay off the long-term debt?

  • 2002: 1.75 years
  • 2011: 3.98 years

What happened with net income?

  • 2002: Net income was $ 9.249 billion
  • 2003: Net income was $10.810 billion
  • 2011: Net income was $ 1.446 billion

How many years of net income would it take to pay off the long-term debt?

  • 2002: 6.51 years
  • 2003: 6.97 years
  • 2011: 257.44 years

What percentage of net income was paid out in cash the past ten years?

  • 65.0% was enjoyed by owners in dividends, or $62.571 billion
  • 49.3% was enjoyed by departing owners, or $47.432 billion
  • 114.3% was the total payout ratio

How many years was cash paid out?

  • 10 years for dividends totaling $62.571billion. An $6.257 billion year average
  • 6 years for treasury stock purchases for nearly $47.432 billion. An $7.91 billion a year average

What percentage of revenue went for dividends and share repurchases?

  • 8.7%: 10 year total for dividends
  • 6.6%: 10 year total for share repurchase
  • 2011: 1.9% of revenue went for dividends
  • 2011: 0.0% of revenue went for the repurchase of shares
  • 2002: 10.8% of revenue went for dividends
  • 2002: 21.6% of revenue went for share repurchases

Where was the information found?

Why should common stock investors care about the increased levels of long-term debt?

  • Fixed income investors may have the maximum percentage of Bank of America issues in portfolio's. Finding new investors may require yield enhancement resulting in less cash available to common shareholders.
  • Asset sales may put further pressure on asset prices.

Conclusion:

The risk-reward may favor preferred and or fixed income investors at this time. Longer-term investors may want to use the dividend or interest cash-flow to build a position in the common stock.

All investors, (common stock, preferred stock and fixed income), may have enjoyed better returns had less revenue and net income been allocated for share repurchases.

Disclosure: I am long BAC preferred stock, no position in Bank of America common stock.

Source: Bank Of America: 10 Year Review, 100+% Total Payout Ratio