Bank Dividends For 2013

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The financial services sector, the second-largest sector weight in the S&P 500, has impressed in 2012. One widely-followed gauge of the sector's alpha-generating capabilities, the Financial Select Sector SPDR (NYSEARCA:XLF), has surged 25.6 percent year-to-date.

Impressive are the performances notched by many money-center banks because the group is still controversial and prone to negative headlines. This has brought news of Libor-gate, the London Whale, job cuts and assorted other issues that have had the public relations teams at major banks working overtime.

Even amid escalating fears about the fiscal cliff, Financial Select Sector SPDR (NYSEARCA:XLF) has managed to gain almost seven percent in the past month. That might have investors wondering if financials can keep the good times rolling next year and, perhaps more importantly, where the sector's compelling dividend opportunities can be found.

Bank of America Corp (NYSE:BAC)

Bank of America Corp (NYSE:BAC) Bank of America has been the epitome of reversed fortune in 2012. In 2011, this was the Dow's worst-performing stock. This year, the shares have nearly doubled and will easily be the blue-chip index's best performers this year. In the past month alone, Bank of America has rallied 20.6 percent. Monday's close at $11 is the first time the stock has seen that area since the second quarter of 2011.

Bank of America is not without risks, chief among them $25.5 billion in unresolved mortgage claims stemming from the regrettable 2008 acquisition of Countrywide. Still, it should be noted the bank has easily met the capital requirements set forth by Basel III and at least one analyst sees room for significant dividend growth.

With an improved balance sheet, Atlantic Equities analyst Richard Staite sees BofA boosting dividends by enough next year to take the shares to a yield of 1.8 percent and 2014 dividend dividend increases could bring the yield to a decent 3.4 percent, according to the TheStreet.com. Even 1.8 percent is a lot better than the current yield of 0.4 percent.

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