Bank of America (BAC), like the majority of the financial industry, has been through somewhat of a roller coaster ride since the recession began. However, with the DOJ settlement nearing, it might just be a good time to initiate a small position.
Last week, Citigroup (C) announced they reached a $9 billion settlement with the DOJ. BAC had greater exposure to the mortgage market with the acquisition of Merril Lynch, so we should probably expect theirs to be a little higher than that. Many analysts are expecting it to be in the $17 billion range. Based on what the eventual settlement comes out to be, it may create enough sentiment to drive the price lower and create a good buying opportunity. Something to keep an eye on in the coming weeks.
As for dividends, BAC was sitting pretty low at only 1 cent per share. However, they recently were approved by the DOJ to increase their dividend to 5 cents a share, which represents an annual dividend yield of 1.23%. That isn’t necessarily the greatest of dividend yields, but it’s also not terrible since many financial institutions are in the 1-2% range right now.
One thing to note though is that BAC’s peers have increased dividends far more quickly in the past two years. JP Morgan (JPM) and Wells Fargo (WFC) have both increased their dividend 3 times, while Citigroup (C) and BAC have not. This represents a huge upside in future dividend yield. Finding a good entry point now, could help with gains on capital appreciation as sentiment surrounding BAC improves following the settlement and they begin to raise their dividends back to pre-recession levels.
Overall, BAC is one of my favorite financial stocks moving forward. Not only are they undervalued, but they represent a company with a lot of potential upside if everything continues to improve according to plan. As a long term investor, it is that bright future that truly sways me when looking at which stocks to invest in. I highly suggest you take a look at them.
Check out the video below for a more detailed analysis
Full Disclosure: No position in any stocks mentioned in this article