This Financial Stock Just Gave Investors A Dividend Boost. Is It Time To Dive In?

The stock market is still reeling from last week's rout, with the benchmark S&P 500 index down over 2.5% over the past month. Despite strong momentum enjoyed by tech heavyweights, the tech-focused Nasdaq composite Index has declined by nearly 5% over the past month. However, investors are regaining confidence, as Nasdaq rose by over 6% over the past week alone.

"We are optimistic that a short-term bottom was put in place, or came close to being put in place, on Aug. 5," said Lori Calvasina, head of global equity strategy at RBC Capital Markets. 

However, dividend stocks are gaining significant traction, with markets remaining highly volatile. Furthermore, with the latest inflation data pointing toward a rate cut in September, investors are gearing toward dividend stocks to maintain a steady source of income. 

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Bank of America's Latest Move

In a move sure to grab the attention of income-focused investors, Bank of America Corporation BAC announced a significant boost to its quarterly dividend alongside a new $25 billion stock repurchase program last month. The Board of Directors approved a regular quarterly cash dividend of $0.26 per share, up over 8% from the previous $0.24, payable on Sept. 27, 2024. 

The company currently pays $1.04 in dividends annually, yielding 2.7% on the current price. Bank of America's four-year average dividend yield stands at 2.44%. The financial institution has raised its dividend payouts for 11 consecutive years. 

Updated Share Repurchase Plan 

The dividend boost isn't the only news making waves. Bank of America's Board of Directors’ new $25 billion common stock repurchase program is set to begin on Aug. 1, 2024. This new authorization replaces the company's current program, which still had $6.7 billion remaining as of June 30, 2024. 

This aggressive buyback program highlights the bank’s confidence in its financial strength and prospects. Shares of BAC have risen by 14.8% so far this year, slightly ahead of the S&P 500 index's 14.3% gains over this period. Stock buybacks are often seen as a bullish sign, as they signal that the company believes its stock is undervalued.

Morgan Stanley and Barclays have an "Overweight" rating on BAC stock, with a price target of $49, indicating a potential upside of over 26%. 

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Promising Growth Prospects 

Jim Cramer, a prominent talk show host and former hedge fund manager, thinks Bank of America stock is a buy right now, given its promising growth prospects. Wall Street expects the financial institution's revenues to increase 12.3% year-over-year to $102.61 billion in fiscal 2024. Furthermore, the consensus EPS estimate of $3.28 for the current year indicates a 6.5% increase from last year. Analysts expect the company's bottom line to grow at a compound annual growth rate (CAGR) of 9.6% per annum over the next five years. 

"We added several new positions during the quarter. Our largest new addition was Bank of America Corporation BAC, one of the world's leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity," ClearBridge Value Equity Strategy claimed in an investor letter. 

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