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The Recently Recommended Monthly Stock Special
Recently Recommended

The recently recommended company is *Bank of America Corp. (BAC)

Company Information:

Bank of America Corp. (BAC) is a multinational investment bank and financial services company headquartered in Charlotte, North Carolina, which provides banking and financial products and services for individual consumers, small- and middle-market businesses, institutional investors, large corporations, and governments worldwide. It operates in the following segments: Consumer Banking, Global Wealth & Investment Management, Global Banking, and Global Markets. It is the second largest banking institution in the United States, after JPMorgan Chase, and the ninth largest financial services company in the world by revenue. Its current total market capitalization of $211 billion makes BAC a mega capitalization stock (a mega-cap stock has a market capitalization value of more than $100 billion).

 

It is considered a diversified business with a wide economic moat and a durable competitive advantage over rivals, which also enjoys a solid management and corporate culture. According to Yahoo! Finance, consensus estimates call for the company to earn about $1.58 per share this year, and to go to about $2.11 per share in 2021. Bank of America has paid dividends to investors since 1903 and has increased its payments for six consecutive years. During the past five years it has increased its dividends at an average annual rate of 31%, and its quarterly payment of $0.18 per share currently provides a yield of 2.96%.

 

The value of dividends reinvestment: A hypothetical investment in Bank of America has grown cumulatively (including dividends reinvested) 3,311.03% during the past forty years. The same investment has grown only 1,157.29% during the same period of time, excluding dividends. According to the data and calculations of the financial website dqydj.com (don’t quit your day job), a periodic monthly investment of $100 in BAC for the past 40 years would has grown to $1,063,098, including dividends reinvested. The stock exhibits a healthy Dividend Payout Ratio (DPR is the proportion of earnings paid out as dividends to shareholders) of 34.78%, which means the company is paying out 34.78% of all its net income in dividends, and is retaining a large percentage of earnings to reinvest or grow the business. Its average DPR during the past five years is 22%.

 

Its current Price to Earnings ratio (P/E --a measure of valuation) of 12.00 is 46.2% below the US Market Index, and the forward P/E ratio is 15.82. Its Price to Book ratio of 0.89 is 72.2% below the index, its Price to Cash Flow of 3.41 is 75.3% below the index, and according to Morningstar, the stock is trading at an 11.3% discount, making it attractive for investors with a long-term investment horizon. Technically (from the chart’s perspective) BAC also looks attractive, trading 30.4% below its all-time high), while it is forming a long price consolidation pattern between $29 and $18 approximately, in which $18 is acting as a strong technical support level.

 

The actively managed mutual funds Dodge and Cox Stock and Vanguard Wellington Inv. are major shareholders of BAC, holding 0.88% and 0.87% of its shares respectively. The stock is also one of the holdings of the mutual fund managed by Moneypaper Advisors, the MP 63 Fund (DRIPX). BAC’s main competitors are JP Morgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Citigroup Inc. (C). BAC’s 5-year Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 1.58 so the stock is 58% more volatile than the Market.

 

Best and worst years during the past 40 years: Its best year was 2012, in which BAC returned, excluding dividends, 108.8%. On the flip side, its worst year was 2008, when the stock declined 65.3% excluding dividends. BAC’s Dividend Reinvestment Plan charges no fees for cash investing, dividend reinvestment, safekeeping, automatic investment or termination of the plan. With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term.

 

Disclosure: Mario Medina is a long-term investor in Bank of America Corp. (BAC) and his investing strategy consists on investing small amounts periodically (also known as dollar-cost average or DCA), always with a long-term view. The author is co-manager of the MP 63 Fund (DRIPX), which hold a position in the company. The author wrote the article himself and it expresses his own opinions. The author has no business relationship with BAC and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice. Past results illustrated in the article are for reference and educational purpose only and do not guarantee future performance.

 

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