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

In other words, management deserves a lot of credit for managing to turn one of America’s shakiest and unwieldy banks into a company that can likely stand up to a potential mini-depression without government support.

That’s thanks to the most important changes that Mr. Moynihan has brought to Bank of America, a relentless focus on high credit quality and disciplined loan underwriting.

Bank Of America has been steadily growing its loan book while maintaining strict credit quality (as seen with its declining net charge-off ratio below) rather than attempting to grab faster growth via extending credit to subprime borrowers shows that management is serious about transforming the corporate culture at the company.

In fact, UBS Group AG (USA) (NYSE:UBS) analyst Brennan Hawken recently stated after its most recent earnings results that Bank of America was fast becoming “the most conservative large bank.” While Mr. Hawken believes that this pivot to ultra conservative banking could leave a lot of profit on the table, personally as a long-term dividend growth investors I applaud Bank Of America for attempting to mimic Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) in growing long-term shareholder value the right way – slow and steady.

This is especially true when you look at the bank’s exceptional growth in this time of severely low interest rates, which makes it hard for banks to earn substantial returns on their loans.

When it comes to all the metrics that matter for long-term investors, including EPS growth, the dividend payout ratio, the dividend itself, the efficiency ratio (what proportion of revenue go to operating the bank), the Tier 1 capital ratio, and net interest margin, Bank of America is making good progress (see table below).

This is especially visible in its growth in book value per share, which is the best objective measure for a bank’s intrinsic value. Specifically, the company has been steadily growing its book value despite the challenging market conditions in the banking industry, and thus setting itself up for potentially much stronger capital gains going forward (when its P/TBV multiple might expand).

Source: Bank of America Earnings Release