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Bank of America: The Worm Has Turned


  • Bank of America is down 22% for the quarter and 18% year to date.
  • Nonetheless, I submit the worm has turned and blue skies lie ahead for the bank.
  • Bank of America is one of my top dividend growth securities. The bank has steadily grown the dividend over the past decade.
  • What’s more, the bank is trading at a bargain bin price just off a 52-week low.
  • With an attractive valuation, an excellent dividend growth and total return opportunity presents itself. In the following piece, I make my case.

Bank of America

E_Y_E/iStock Unreleased via Getty Images

What happened?

Bank of America (NYSE:BAC) has sold off hard for the past quarter. The stock is down 22% for the quarter and 18% year to date. This has created a substantial buying opportunity for savvy investors I’d say. It appears an initial breakout

This article was written by

David Alton Clark profile picture

David Alton Clark is a U.S. Army Veteran and a former public auditor, bank executive, FINRA securities broker, with over 30 years of experience in portfolio management. In 2020, David was named "Stock Picker of the Decade" by Yahoo Finance. He specializes in the understanding of full market cycles, having successfully navigated the bubbles of 2000 & 2008.

David is the leader of the investing group The Winter Warrior Investor, where he shares "best-in-class" high-yield income and growth securities trading for attractive valuations. Features of The Winter Warrior Investor include: Model portfolios with tracking, a weekly top idea, weekly macro insights, monthly videos, and access to David and his community via chat. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BAC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (85)

David Alton Clark profile picture
Thanks for reading!
If you enjoyed this article, it would be much appreciated if you hit “Follow" so you don’t miss out on my next piece!
What’s more, I am in the process of launching a new investment service with Seeking Alpha. It takes a couple months to get things up and running, but SA suggested I give readers a heads up the new service is coming!
If you read my BIO, you will see I am a self-made man. I started my adult life by joining the US Army’s famed 10th Mountain Division in Ft. Drum, NY as a “Winter Warrior” mountain infantryman to earn the money for college.
3 years in the 10th Mountain instilled in me an inexorable pursuit for excellence. As an infantryman, if you aren’t the best of the best, you may not survive! Relentless perseverance is my motto! I credit this mindset as the reason I graduated top of my class with honors in Accounting at UTSA.
After, I began my professional career as an auditor and later a consultant for Ernst & Young working with several Fortune 100 companies, a Citibank executive, a FINRA registered securities broker, and a licensed Texas REALTOR®. Eventually, I delved into the real estate development business by founding a custom homebuilding company which is still in business today, all the while managing my own portfolio for 30 years.
This includes successfully navigating the 2000 and 2008 bubbles, so I completely understand the full cycle the market can take. I am known as the "Bubble Surfer" in investing circles for my ability to preserve capital during times of duress. In 2010, I was published in the Wall Street Journal as a guest post regarding my thoughts on the Oil & Gas industry.
After, I started writing for Seeking Alpha as I found writing to be a passion. Since, I have published over 1000 articles in the past 12 years. My articles have been featured in The New York Times, Yahoo Finance, Forbes, and Fortune to name a few. My professional background has provided me with an intimate knowledge of corporate financial statements and how companies actually make money.
I was recently named the “Financial expert of the decade” by TipRanks on Yahoo Finance for holding down #1 rank based on pick returns for a majority of the past 10 years. Now, I have become a CNBC Contributor and a millionaire retiree at 58! I recently took profits and raised cash on several positions at the end of last year. I plan to redeploy the profits into new securities in the following months and years. How to become and stay a millionaire retiree by finding 5-fold winners such as Bank of America and solid income producing securities now will be the focus of the service. Moreover, I will impart the wisdom and knowledge amassed over years by detailing my investment methods and protocols so you too can invest like the Winter Warrior! Please respond to this comment if you are interested in becoming a Charter Member of the service and I will be in touch! Thanks for your time! Hoowah! DAC
@David Alton Clark Thank you for your Service to the Nation!
Ludicrous Speed profile picture
@David Alton Clark Just left FDNY after a few deployments and a few more winters of freezing my butt off. If you can succeed there, you can probably succeed anywhere!
Avoid this dud stock. I had warned to sell when it was $35. Now it is about $31. Remember when it was $7?
David Alton Clark profile picture
@Kenyatta You kinda shoot yourself in the foot by bringing up it used to be $7 don't you think? lol Its been a 5 bagger over the last 10 years... doesn't seem like a dud to me... DAC
I read the transcript of the CFO, and it seems to me he had a lot of good things to say. Don't forget that every 1% increase in interest rates increases Net Interest Revenues by 5+ Billion at BAC. That's huge.
jerseyvalueinvestor profile picture
Great article, no brainer buy here, I sold some BAC last year between 44 and 50 per share, bought it all back at 34-38

Onward and upward!
@jerseyvalueinvestor I am glad you followed my advise to sell when it was over $45. If you wanted to buy it at lower, you should have sold a put option strike 34 or less. Or if you believe that it may go back to $45. you should have sold put, strike $45. In my one cent opinion, I don't see a catalyst for the stock to go higher.
jerseyvalueinvestor profile picture
@Kenyatta Already sold puts, got assigned, and bought back stock in addition cheaper. Check.

Who cares about stock price going higher, profits will be higher because of interest rates. All i care about. Best wishes.
how does MR DAC look at the contribution of Merrill Lynch in this current environment?
So the question really is.....does the current economic environment pose a undue risk to the fundamentals of BAC? Right at this moment the answer is no...not at all. But what about a year from now?

My personal opinion is that BAC is in a very good position to weather at least a mild recession. I am a hold. I bought in March of 2020 though. So I'll just keep on collecting the dividend until the economy re-adjusts.
Eileen Dover profile picture
@Bladernr1001 Bought a BAC preferred. Will get steady good income and a windfall if they ever call it (par $25, now under $18.
Will rising rates really benefit BofA? Yes, interest income will rise but so will interest expense - particularly if Fed tightens supply and banks need to incentivize deposits. Banks make money on the spread not the interest rate per se. On top, default rates might rise and (high paid!) salary costs are going up. Plus: their investment banking arms have earned a lot in investment banking (IPOs, SPACs etc) that will gradually go down as well. So not sure whether it‘s a bullish or bearish sign. What do you think?
David Alton Clark profile picture
@MaMe21 Those are all valid concerns. I just feel like the positives from reopening will outweigh the negatives. Thanks for your input! DAC
Please don't get sucked by reading this article. BAC is a dud. If it goes back to $48, you should get out. The problem is that with rising interest and economy slowing down gradually, layoff will happen. This will cause credit card charge-off to increase and adjusted mortgages delinquencies increase. Moreover, the dividend is not that much. Put a stop at $35.
If you like BAC then you will love AX and INBK a whole lot more.
Higher profits, better growth, no donations to BLM.
Eileen Dover profile picture
@optional- AX - No dividends, no way. INBK - .6% dividend yield, same as nothing - no way. When market corrects itself down for real, you'll be holding those and waiting for them to recover without any payouts whatsoever (to speed up the recovery) while you wait.
@Eileen Dover , Berkshire Hathaway doesn't pay dividends either. Excluding all dividend stocks is not smart investing.
Eileen Dover profile picture
@optional- BRKA is the only one I have that does not pay dividends. Having holdings in a dangerous market that do not have payouts would handcuff you to them until they recover (or take big losses), while dividend holdings would recover more quickly with their regular payouts, even if they might be reduced. That's the reason many are flocking to utilities even though they are still overpriced. Non-dividend stocks are great for growth in a safe economy.
Eileen Dover profile picture
@David Alton Clark very nice article. Do you have an opinion on BAC-Q up 4% today to $18.27 and yielding 5.8% on a 4.25% pfd issue? Would it make sense to pick it up, collect the yield, and wait for hopefully it get called at $25 so there is a quick almost $7 profit per share ? What could stop that scenario ? Thanks
David Alton Clark profile picture
@Eileen Dover I don’t know what could stop the scenario, but it sounds like a good idea. I would support that strategy. Plus it could rally from here as well. It looks like it’s trying to bottom. thanks for the positive feedback Eileen! DAC
Eileen Dover profile picture
@David Alton Clark I'll put in a limit price and reinvest the dividends so if/when it is called I will have even more shares at $25 ! Thank you
@Eileen Dover , At 4.25% it will never, ever, be called. That is why the price is so low. You are going to get 6% return in an 7% inflation and re-invest the dividends? ... Ouch.
Thanks for your service....and for the informative piece. Wish I had served, but it was during Vietnam (draft ended when I was 17) and times were different. Try to make amends by donating to military/veterans groups, frequently picking up the restaurant/grocery tabs of military & law enforcement. So....you say your 12-month price target is $49, which basically gets us back to where we were less than 2 months ago. Perhaps that price was undeserved. But is Moynihan the right man for "the future"....was the right man to steer BAC during turbulence, but it's a new day. Most think he is....your thoughts? Cheers!
David Alton Clark profile picture
@Pabst Hey Pabst! Thanks for all the kind words and your supper for the military! I like Moynihan. He is a big part of the reason I’ve had confidence in BAC. I don’t see him making any glaring mistakes. I think it’s good to have a person in there who has dug in to the company and k owns what’s going on. A new person may take some time just to grasp the business it’s so vast. Thanks again Brother! DAC
@David Alton Clark I'd argue that $BAC has made fewer mistakes under Moynihan in the last six years than $JPM has under Dimon. I like Dimon more as a person but that is just my personal bias - - not a reason to choose $BAC over $JPM. Whenever $JPM falls on its face, the market is in the habit of giving Dimon a 'pass'.
I hope your expectations for significant dividend increases 'over the next decade' is slanted toward the latter half of the next decade. I doubt that BAC will increase the dividend rate beyond about 2.5% until the buybacks pare the share count down to something starting with a 4, or maybe a low 5. To get to that share count will take another 4-5 years.
@aj485 So far, there has been plenty of room to march up the $BAC dividend by 12 cents a year. The only barrier to that has been the FED but their interference is on the wane. For my money, the potential dividends used for buybacks is a tax-free gift to me. Eventually, that will turn into real cash flow to stockholders, too.
@ExpertComptable $0.12/year isn't enough of an increase to even keep pace with stock prices that @David Alton Clark is projecting. If the stock increases to $49 by the end of the year, as he is projecting, a $0.12 increase/yr would bring the dividend rate down to 1.9% Additional $0.12 increases/yr would continue to drive down the dividend rate. "Significant" dividend increases would be enough to get the dividend rate to 4%/year. That's not going to happen until the latter half of @David Alton Clark 's next decade, when the share count starts with a 4 or a 5.
Eileen Dover profile picture
@aj485 I guess you won't be investing in BAC ? lol. Why not look at the BAC pfds ?
I’m thinking the dividend should go to a dollar 🙏
Briannicus profile picture
@bru the kid Concur...with EPS projected north of $3.50 I would think the minimum annual dividend would be $1.00. We'll find out in the next couple of weeks.
Hello Again 83 profile picture
Purchased BAC as an employee of the company. They offered the Bank of America stock fund in our 401k at the bank so during the financial crises I dumped every dime into the BAC fund when it dropped to 5 bucks. "They even matched a big chunk of my contribution to the fund" The 78 grand I invested back then is now almost 600 Grand. Dividend going up after stress test in June also. Rising rates are bad for many stocks but great for bank stocks. Very Long BAC
David Alton Clark profile picture
@Hello Again 83 Very nice Hello! Your name sounds familiar to me! DAC
Ishi Kenjo profile picture
The worm... lol, accurate description!!!
Purchase BAC back in 2009 and kept buying till 2020..
My ave now is 15.23
Hopefully dividend will increase this year.
garro profile picture
While agreeing in most part to a rising tide for banks as interest rates go up I am also aware that a potential recession of steep downturn will be a factor in bank earnings. Rising rates affect mortgage demand and if a recession does happen the overall economy will be negatively impacted.
I like BAC and have owned for 10 years but am not confident there is a lot of upside YOY going forward but if they increase the dividend I would be pleased!
David Alton Clark profile picture
@garro I hear you, yet my feeling is the recession if it comes will be short and shallow. Feel like the banks are well equipped to deal with it. Most bank stocks are up today. DAC
petethebeet profile picture
Congratulations on your 58 year old, self made retired millionaire status.
David Alton Clark profile picture
@petethebeet Thank you Pete! Built my dream home for myself right on time! Closed in July of 2020. Took about 2 years during the pandemic getting settled in. But I got bored. Just because I was financially secure and didn't need to work didn't cut it for me. I got stir crazy. I am the type that needs to keep busy to be happy. That's why I started writing again and plan on starting a new service to share my knowledgebase. I've got to have a passion, a goal to keep my spirits up. I love waking up and figuring out what I'm going to write about next. I say I am retired, not dead! Ha! DAC
@David Alton Clark great job David! Hoping someday to do the same. 30 yrs old, paid off my student debt, and built up 130k in net worth so far, and I don't even have a very high salary, and didn't do anything crazy like buy bitcoin, just good quality stocks, and BAC is one of them.. happy to have bought at the bottom of the 2018 selloff.
David Alton Clark profile picture
@Net Income Keep it up brother! You are exactly the target market for my service! I want to help younger investors learn how to become millionaire retirees as well and help current millionaire retirees stay millionaire retirees! ha! DAC
westelk profile picture
BAC sold truckloads of shares at bargain prices and is buying them back at much higher levels. A good management selling low and buying high? Pass.
@westelk Huh? Maybe you should study-up on how treasury share accounting works.
I agree, the banking sector is a good place to park funds at this time, low price and valuation. I like BAC, and best of breed JPM.
David Alton Clark profile picture
@Money 29 Thanks for your input Money! DAC
Own BAC at $14 so I am a bit behind the author but also a believer and happy with a 271% return. BAC under Moynihan is well diversified and well run. The dividend is a bit disappointing but they lost an increase when the Fed suspending everything for the pandemic and will likely go to 24 cents per share latter this year. I like the stock for all the reasons mentions along with the commitment toward huge buybacks to reduce the # of outstanding shares. The bank typically commits to about 25 billion in buybacks and at their current price reduces the share count around 600 million shares in a 12 month period. They have a large count of 8 billion but that’s down from over 10.5 billion 5 years ago and 8.5 billion last year.
With 50 basis point interest rate increases anticipated today and in June the NII should expand dramatically.
David Alton Clark profile picture
@Jlexus1953 Thanks J! I left out the buyback catalyst! Good catch! Thank you! DAC
@David Alton Clark my pleasure. Saw there have not been any buybacks this year?
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