This financial stock just gave investors a dividend boost. Is it time to dive in?

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The stock market continues to reel from last week’s meltdown, with the benchmark S&P 500 down more than 2.5% over the past month. Despite the strong momentum enjoyed by tech heavyweights, the technology-focused Nasdaq Composite Index has fallen nearly 5% in the past month. However, investors are regaining confidence as the Nasdaq is up more than 6% in the past week alone.

“We are optimistic that a short-term low was established, or was close to being established, on August 5,” said Lori Calvasina, head of global equity strategy at RBC Capital Markets.

However, dividend stocks are gaining significant traction as markets remain highly volatile. Additionally, with the latest inflation data pointing to a rate cut in September, investors are turning to dividend stocks to maintain a steady source of income.

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Bank of America’s latest move

In a move sure to catch the attention of income-focused investors, Bank of America Corporation (NYSE:BAC) last month announced a significant increase in its quarterly dividend, along with a new $25 billion share buyback program. dollars. The board approved a regular quarterly cash dividend of $0.26 per share, up more than 8% from the previous $0.24, payable on September 27, 2024.

The company currently pays $1.04 in dividends annually, yielding 2.7% of its current price. Bank of America’s four-year average dividend yield is 2.44%. The financial institution has increased its dividend payments for 11 consecutive years.

Updated share buyback plan

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

This aggressive redemption program highlights the bank’s confidence in its financial strength and prospects. BAC shares are up 14.8% so far this year, slightly outpacing the S&P 500’s 14.3% gain over the period. Share buybacks are often seen as a bullish sign because they signal that the company believes its stock is undervalued.

The story continues

Morgan Stanley and Barclays have an “Overweight” rating on BAC stock with a $49 price target, indicating upside potential of more than 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 now a buy given its promising growth prospects. Wall Street expects the financial institution’s revenue to grow 12.3% year-over-year to $102.61 billion in fiscal 2024. Moreover, the current year’s consensus estimate of $3.28 points to an increase of 6.5% compared to last year. Analysts expect the company’s bottom line to grow at a compound annual growth rate (CAGR) of 9.6% per year over the next five years.

“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving approximately 66 million US consumer and small business customers, 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 eased and risks related to deposit outflows have diminished, which should allow the company to improve its book value and capital growth as well as benefits. from a rebound in capital markets activity,” ClearBridge Value Equity Strategy argued in an investor letter.

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