Bank of America: The Most Popular Dividend in America?

In my short history following stocks and participating in the stock market, I can't remember a set of dividends that was so anticipated, and so questioned as the upcoming Bank of America (BAC) pay outs. In November, 2007 when I purchased Bank of America shares I asked the question:

Will Bank of America continue to raise its dividend year after year, and survive this credit crunch just as they have survived every financial crises in the past.

At the time BAC was yielding 5.7% and I was betting that they would not cut their dividend, and that they would survive the credit crunch. Needless to say that even though I purchased BAC when the Loonie was trading around $1.07 vs. the Greenback, I am currently underwater on my BAC position.

Fast forward to today where BAC yields a whopping 7.8%, and on Monday, Chief Executive Officer Ken Lewis said that the second-largest U.S. bank has no plans to cut its dividend.

According to Lewis:

You have to do what is in the best interest of the company, but we see no reason to cut the dividend.

 

Should we believe Ken? Considering all the dividend payments in the U.S. banking sector that have fallen by the wayside, I am not sure. Washington Mutual (WM), Citi (C), and Wachovia (WB) among others, have all cut their dividends since November 2007. It does seem that Ken left some ambiguity in his statement. He sees no reason to cut right now, but he may see a reason in the future. If he does, he'll do what is in the best interest of the company.

The next few dividend payments that BAC pays out will tell the story. If BAC raise sits dividend within the next few payments I am certain that several dividend investors will be adding to their positions or getting in for the first time, as these yield levels are hard to pass up for a bank with such a solid history of dividend growth. One would have to assume that because of where BAC is trading today (7.8% yield), the market is pricing in a dividend cut.

 

Comments

[jackooo:]

In my opinion Bank of America is the worst bank going. I constantly degrade them to potential customers that I know.
My experience with them is that they rip off the customers with fees and exagerations. The lines are long and the interest paid is minisule.

2008 Jun 04 11:50 AM

[jackooo:]

As far as not cutting the dividend..Didn't Ken Lay say they were in good shape too?

2008 Jun 04 11:52 AM

[jimsep:]

Banks are reluctant to decrease dividends, because investors have nothing else they can count on. They can't believe managements, Wall Street analysts or the talking heads on CNBC.

But things don't look better at Country Wide and loan losses on the original bank continue to get worse.

So it is not a safe dividend

2008 Jun 04 12:20 PM

[nyka:]

Put a question mark after paragaph two. Call the BAC CEO Lewis, not "Ken," unless you two are on a first-name basis, which is unlikely.

2008 Jun 04 12:29 PM

[Chemist29:]

Yes ken thompson preached about the safe dividend etc etc. Now he's been retired haha

2008 Jun 04 12:41 PM

[Eagle-Chief:]

Nyka - you should get a job proofreading....not critiquing articles. Yeah, I go for the question mark, but CEO Lewis, or even Lewis? Give me a break. These guys (CEO's) are humans just like the rest of us - remove their clothes and they're no different than the rest of us. These are (rather) informal articles and the author did write "CEO Ken Lewis" shortly before he wrote "Ken." These guys (CEO's) are not gods. Tom, Dick, Harry or Ken is just fine with me.

By the way, The (or is it Mr. Moneygardener? - hehe), I see you're Canadian. I used to believe (like you) that stocks are a way to get rich (or at least, get richer). But now I strongly feel that the stock market is a game to benefit large corporations and their multi-million dollar earning CEO's. Sure, there are sometimes dividends. But I see that you are still "underwater." Some people do well, but stocks are risky. Very risky, as we are now seeing. Many people lose money. Buying stocks is gambling, clear & simple.

This comment forwarded to Nyka for proofreading. :O)

2008 Jun 06 03:36 AM

[Dusty:]

I bought some BAC in May and more in October of '07 because my advisory service said "buy." I consider myself a centerline 'average' micro investor and I will be ecstatic if BAC just survives, continues a dividend at all, and regains its relative position when this current mess is over in 2015 (?). Then I will still have my money and the bit of cash income necessary when it is really needed. No, I have a lot of small positions as diversified as I can manage.

And, Eagle-Chief, I mostly agree about gambling. I do think that with care and a little luck, dividends and a very small overall capital gain can be managed that will generate a better return than interest on most savings will. It is not about getting rich but rather a best shot at survival.

2008 Jun 06 07:46 AM

[herbnerho:]

Re;Jackooo,It's interesting that you see interest rates low when I'm getting better rates in MI that a Credit Union that just closed out.

2008 Jun 06 07:53 AM

[Kamal Ahuja:]

I believe that BAC is a terrific franchise with one of the best diversified portfolios of financial product offerings. I have liked and followed their M&A strategy for a while. BAC at $31 and a 5-year average dividend yield of 4.20% should be a superior investment in the long term.

2008 Jun 06 12:05 PM

[Johnnie:]

BAC has a better balance sheet than the US Treasury. It is a sound company with a splendid track record - Like EXXON MOBILE - Their brilliance is to be admired. The dividend is about as safe as can be. Our politicions are far behind the opower curve. Have faith!

2008 Jun 06 03:37 PM

[Ernest Wong:]

BAC is one solid company. They run a tight ship. Also, they constantly think of a way to nickel-and-dime you to death. I know, I have been their customer for almost 20 years, way back when they took over Security Pacific.

2008 Jun 06 09:40 PM