Tuesday, January 22, 2008

talking the dividend talk

"We have not changed our philosophy on the dividend, and we are proud of our record of 30 years of annual increases in the common share dividend."

This is an approximate quote from Bank of America (BAC) CEO Ken Lewis on the company's fourth quarter conference call this morning where they announced a profit drop of 95% in the quarter. Apparently in maintaining appropriate capital ratios going forward Lewis may choose to pare back share repurchases, raise capital, etc.; he seemed to indicate that the dividend is either safe or is regarded as sacred to the company's plans. Lewis also projected 2008 profit to be well above $4/share, whereas analysts expect $4.33. 'Well above' $4 per share in profit is a nice increase on 2007's EPS which is now finalized at $3.30/share. Lewis did mention that this is all barring 'a new market shock'.

While this can not be misconstrued as 100% assurance that Bank of America will not cut their dividend, the type of language and emphasis Lewis used has me taking notice. Being a dividend growth investor for the long term, I get really interested when a great company with temporary problems like BAC is yielding 6.8%, and is confident enough to put priority on their long term dividend growth philosophy. This statement tips me off that BAC is serious about maintaining their dividend and will use other means necessary to maintain capital ratios.

Based on this positive dividend and earnings growth guidance, I may add to my position in the coming weeks.


Jake (Dividend Investing Blog) said...

I think what we saw yesterday is that the banks are oversold. Citi's cut seems to be the exception rather than the rule. Regions increased dividends and it doesn't appear any of the other regional banks plan to cut anytime soon.

I'm in.

pitz said...

This behaviour on the part of BAC may very well be wreckless, especially if they are not raising capital on favourable terms. If the bank has stable assets and a stable balance sheet -- great. If they don't, and need the capital, the dividend should be amongst one of the first places that is cut before they embark on highly dilutive measures to raise equity in these turbulent markets.

Dividends4Life said...

My oldest bank position is in BAC. I have always felt aligned with their operating management. The ability to overcome short-term adversity and maintain their dividend will eventually pay dividends for the company. (pun intended)

Best Wishes,

Thicken My Wallet said...

BAC just announced a $6 billion equity raise which seems to indicate they will have enough short-term capital to protect the dividend.

MG said...

pitz, I'm leaving those decisions to the mgmt., although I am bias on which route I'd like them to take as a dividend growth investor. Essentially I trust mgmt. to work their way out of this responsibly, right or wrong of me.

Looks like I may not get my chance to double my BAC stake after today's 8%+ rise.

Anonymous said...


you will get another chance. The increase in BAC yesterday and today, is primarily for 2 reasons: Fed Cut and their (BAC'S) dividend announcement.

When one or more of the subprime news hits, it will go down again.

Good thing C is in such a mess, its news will help us buy BAC, Wells Fargo and USB cheaper.

I have a quarter position in BAC. Waiting to double down.