Is Bank of America Corporation (NYSE:BAC) A Smart Pick For Income Investors?

A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Over the past 10 years, Bank of America Corporation (NYSE:BAC) has returned an average of 1.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at Bank of America in more detail. See our latest analysis for Bank of America

Here’s how I find good dividend stocks

If you are a dividend investor, you should always assess these five key metrics:

• Is it the top 25% annual dividend yield payer?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

NYSE:BAC Historical Dividend Yield June 21st 18

Does Bank of America pass our checks?

The company currently pays out 24.40% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 28.05%, leading to a dividend yield of around 2.61%. Furthermore, EPS should increase to $2.64. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Not only have dividend payouts from Bank of America fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.

Relative to peers, Bank of America has a yield of 1.64%, which is on the low-side for Banks stocks.

Next Steps:

Taking all the above into account, Bank of America is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three essential aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for BAC’s future growth? Take a look at our free research report of analyst consensus for BAC’s outlook.

2. Valuation: What is BAC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BAC is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.