Bank of America Corp (BAC) : Anticipating the Dividend

This shortened week got off to a good start, as the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) and the broader iShares S&P 500 Index (ETF) (NYSEARCA:IVV) both achieved five-year highs, with gains of 0.5% and 0.4%. The S&P 500 is now less than 5% below the all-time (nominal) high of 1,565.15, achieved on Oct. 9, 2007. (If you’re curious, the S&P 500 Total Return index has gained 7.2% over the same period.)

Follow-up: Volatility
This morning, I offered an explanation to the conundrum of ultra-low stock market volatility: The market had already anticipated that Republicans would blink with regard to the U.S. debt ceiling, rather than forcing a standoff next month. The fact that the VIX was roughly flat today, despite the news that Republicans will seek to vote tomorrow on a bill to extend the debt ceiling until May, suggests this explanation is correct.

Bank of America Corp (NYSE:BAC)B of A: First among equals
Bank of America Corp (NYSE:BAC) was among the top performers in the Dow today, rising 1.9%. There was no obvious company-specific news to explain this, but as one looks through related news items, one headline from Reuters did catch my attention: “Wells Fargo increases its quarterly dividend by 14%.” With the caveat that it is often a fool’s errand to try to explain daily stock-price movements, I think this may be related to B of A’s performance today. Why, then, did JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C) — and Wells Fargo itself — not appreciate significantly on the news? The answer: expectations.

In 2009, all four major banks slashed their dividends. B of A and Citi essentially eliminated them, paying out a token amount, and they remain the two banks that haven’t raised their dividends since then. (All four banks need to obtain the Federal Reserve’s approval with regard to any return of capital to shareholders.) As such, the shares of both banks are most sensitive to changes in expectations regarding their dividend payout. The news that Wells Fargo received approval for a significant dividend increase — and that it has sought permission to return yet more capital to shareholders — suggests that the Fed may be amenable to a similar request from B of A.

So why didn’t Citi shares trade up also? The likelihood that a request from B of A will be approved is higher, as its capital position is stronger. In fact, at the end of the fourth quarter, B of A’s tier one common equity ratio under the new Basel III standards — 9.25% — was the highest among the top four banks.

The article Bank of America: Anticipating the Dividend originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo and (NYSE:WFC) owns shares of Bank of America, Citigroup , JPMorgan Chase, and Wells Fargo.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!