Bank Of America Corp (BAC): A Dividend Growth Stock That Benefits From Rising Interest Rates

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Few investors will ever forget the terror of the financial crisis of 2008-2009, when the global financial system was on the verge of complete collapse and many people were convinced we were headed for another depression.

Shareholders of U.S. megabanks such as Bank of America Corp (NYSE:BAC) were especially brutalized, when one of America’s largest banks came within a stone’s throw of complete insolvency and saw its shares fall over 90% from their all-time high.

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Understandably, large banks have been incredibly out of favor since then, despite what has been one of the more impressive turnarounds in corporate America. In fact, Bank of America’s efforts allowed it to raise its dividend by 50% earlier this year, and more payout growth could be ahead. Warren Buffett owns a number of banks in his dividend portfolio as well.

Let’s take a look at just how far Bank of America has come since the dark days of the Great Recession and if its shares might represent a solid, if still high-risk, long-term opportunity for dividend growth investors.

Business Description

Founded in 1874 and headquartered in Charlotte, North Carolina, Bank of America, with almost $2.2 trillion in total assets, is the world’s 9th largest bank (1) and the 2nd largest U.S. megabank.

It primarily operates in four main business segments but with two thirds of net income coming from its core consumer and corporate banking divisions:

– Consumer Banking: providing retail banking services such as checking, savings, and money market accounts, as well as credit and debit cards through its 4,700 banking centers and 16,000 ATMs.

– Global Wealth & Investment Management: wealth management, brokerage, and retirement services.

– Global Banking: commercial, and real estate loans, revolving credit facilities, merger & acquisition consulting, debt, and equity underwriting

– Global Markets: market maker on numerous global exchanges, risk management, securities clearing, settlement, and custodial services, treasury bonds (helps US government sell freshly issued debt), and mortgage based securities

Business Segment Q3 2016 Net Income % Of Net Income
Consumer Banking $1.813 billion 36.6%
Global Wealth & Investment Management $697 million 14.1%
Global Banking $1.553 billion 31.3%
Global Markets $1.074 billion 21.7%
Other -$182 million -3.7%
Total $4.955 billion 100%

Source: Bank of America Earnings Presentation

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