Dividend Increase | Bank of America

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Bank of America for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On June 27th the second round of the CCAR tests came out that covered the capital return plans, dividends and share repurchases, for 18 large banks that operate in the United States.  As part of CCAR, Bank of America (BAC) submitted plans to increased the dividend payment from $0.15 up to $0.18 per share per quarter.  You know, just a 20% increase!

Just like with US Bancorp and Wells Fargo, the dividend hasn't officially been declared yet; however, I see no reason that Bank of America wouldn't follow through with their plans.  Bank of America has increased dividends for 5 consecutive years giving them the title of Dividend Challenger.  Shares currently yield 2.48% based on the new forward yield.

Since I own 161.817 shares of Bank of America in my FI Portfolio this raise increased my forward 12-month dividends by $19.42.  I also own 108.334 shares in my Roth IRA and this raise boosted my forward dividends for that portfolio by $13.00.  This is the 5th dividend increase I've received from Bank of America since initiating a position in September 2011.  Cumulatively, the organic dividend growth from Bank of America has been 1,700% over that time.  According to US Inflation Calculator, the cumulative rate of inflation over that same time is just 13.8% so to say Bank of America is outpacing inflation would be an understatement.

A full screen version of this chart can be found here.

From 1993 up until 2008 Bank of America had been a great dividend growth company.  Unfortunately, the excesses during the period leading up to the financial crisis over extended Bank of America and they were forced to cut their dividend during the depths of the ensuing recession/crisis.  Since then Bank of America has been growing the dividend quite rapidly which has been great for owners, although the dividend is still well below the pre-crisis highs.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1993 can be found in the following chart.  

A full screen version of this chart can be found here.

*2019's dividend growth assumes the new quarterly payout of $0.51 per share is maintained for the rest of 2019.

Based on dividend yield theory Bank of America appears to be significantly undervalued with a forward dividend yield of ~2.5%.  That's significantly higher than the 5 year moving average of 1.5% and thus a possible candidate for further research.  That being said this is where some discretion needs to come in to the process and the dividend yield is still quite low at just 2.5% and likely still needs to move higher.  If you recall Bank of America had to issue lots, and I mean lots, of shares during the financial crisis to raise capital so I would expect the yield to be much lower.  Looking at the historical payments chart and you can see even with the rapid dividend growth starting in 2014 the quarterly payout is still below what it was at the end of 1997.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Wrap Up

This raise increased my forward dividends by $19.42 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.92% this raise is like I invested an extra $665 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 28 total increases from 25 of the 54 companies in my FI Portfolio.  Combined those increases have raised my forward 12-month dividends by $203.57.

My FI Portfolio's forward-12 month dividends increased to $7,025.20.  Including my FolioFirst portfolio's forward dividends of $100.13 brings my total taxable accounts dividends to $7,125.33.  My Roth IRA's forward 12-month dividends increased to $539.83.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Bank of America's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Bank of America?  What about any of the other big US banks?

Please share your thoughts below.


  1. Glad to share this increase i did a little buying of this during the rotten years as i call it to help get that cost per share down as my original shares were countrywide lol now whenever i buy i raise the cost per share lol.

    1. D&H,

      Ha! Luckily for me I didn't buy shares until the "rotten" years. So things are looking pretty good for stake from a capital appreciation standpoint. Sadly I sold some shares after about a 100% gain pretty early on. Definitely was taking a short sighted view of the business. All is good though since I still have a good sized chunk of shares.

      All the best!

  2. Sadly, I don't own any shares of BAC. Quite frankly, I don't any bank stocks. That may very well change in the future. But your'e right, there's nothing like making money in your sleep. Its always good to see a dividend increase!

    1. DP,

      I completely understand staying away from financials. Considering they were front and center with the last market crash they carry a huge negative stigma around them. But considering how important they are to our economy they won't be going anywhere. You can always dip your toe in with some of the smaller, local branch banks that operate as just a regular savings and loan vehicle rather than the big banks that are also investment banks.

      All the best.


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