Will BAC's Intended Dividend Hike Boost Investor Confidence?

After clearing the Federal Reserve’s 2025 stress test, Bank of America BAC has announced plans to increase its quarterly common stock dividend 7.7% to 28 cents per share beginning third-quarter 2025.

This year, all 22 banks that were tested have passed the stress test, given that the 2025 scenario used to test the banks was less severe than last year.

The current scenario modelled a 10% unemployment rate, a 33% drop in home prices, a 30% decline in commercial real estate prices, an 8% contraction in GDP and a 50% equity market decline. The aggregate simulated losses across the group totaled more than $550 billion. Yet, banks remained well-capitalized with common equity tier 1 (CET1) ratios far above the 4.5% minimum.

Per the results, BAC’s preliminary stress capital buffer (SCB) would improve 70 bps to 2.5% and its CET1 minimum requirement would be 10%, effective Oct. 1, 2025. However, if the Fed’s proposed modifications to the SCB calculation are adopted, Bank of America’s SCB would be 2.7% and its CET1 minimum requirement is 10.2%, effective Jan. 1, 2026.

Currently, BAC has a payout ratio of 31% and its annual dividend yield is 2.20%.

After clearing the 2024 stress test, the company increased its quarterly dividend 8.3% to 26 cents per share, following a 9.1% hike in 2023, a 4.8% rise in 2022 and 17% hike in 2021.

BAC also has a share repurchase plan in place. In July 2024, the company authorized a $25-billion stock repurchase program, effective Aug. 1. As of March 31, 2025, $14.4 billion worth of authorization remained available.

Moreover, as of March 31, 2025, Bank of America had total debt worth $721.9 billion and cash and cash equivalents of $273.6 billion. Given a decent liquidity position and strong balance sheet, BAC is expected to continue to reward shareholders with efficient capital deployments.

Capital Deployment Plans of BAC’s Peers

Like BAC, JPMorgan JPM has announced that it intends to increase its quarterly common stock dividend 7.1% to $1.50 per share for the third quarter of 2025.

Also, JPM’s board of directors authorized a share repurchase program worth $50 billion, effective July 1, 2025.

After clearing last year’s stress test, JPMorgan had authorized a repurchase program of $30 billion. As of March 31, 2025, $11.7 billion in authorization remained available. Moreover, in March 2025, the Wall Street giant raised its quarterly dividend 12%, following a 9% hike in September 2024.

Morgan Stanley MS announced that it would increase its quarterly dividend from 92.5 cents per share to $1.00 in the third quarter. Also, MS’ board of directors reauthorized a multi-year common equity share repurchase program of up to $20 billion, without any expiration date.

Following the clearance of the 2024 stress test, Morgan Stanley hiked its dividend by 8.8%.

BAC’s Price Performance, Valuation & Estimates

So far this year, shares of Bank of America have gained 9.6% compared with the industry’s 18% growth.

YTD Price Performance

From a valuation standpoint, BAC trades at a price-to-tangible book ratio of 1.82, well below the industry average of 2.85.

Price-to-Tangible Book Ratio

The Zacks Consensus Estimate for BAC’s 2025 and 2026 earnings indicates year-over-year growth rates of 11.9% and 16.7%, respectively. Earnings estimates have been revised marginally lower for both years over the past seven days.

Expected Earnings Growth

Currently, Bank of America carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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