When I first purchased Bank of America (BAC) shares through its direct stock purchase plan (DSPP) at ComputerShare more than four years ago, I was solely going after its dividend. At that time, the stock was traded just below $55 with a dividend yield of 4.10%. After the initial investment, the first ever for me via a DSPP program, I also started to make monthly purchase of $100 of the stock with automatic dividend reinvestment because I want to build a portfolio that will generate significant passive income later when I need it and BAC is part of that portfolio, which also includes Procter & Gamble (PG), Progress Energy (PGN), Exxon Mobile (XOM), Altria Group (MO), and Boston Properties (BXP).
However, things turned pretty sour for BAC two years later and the stock plummeted after it dug itself into a huge hold with the purchase of Countrywide Finance and Merrill Lynch at the peak of the financial crisis. In January 2009, BAC cut its quarterly dividend payout to 1 cent a share from 32 cents. The nation’s largest bank by assets had to bailed out by taxpayer money to avoid going under. When BAC stock dropped below $5 in February 2009, I picked up a couple of hundreds shares, along with shares of Citi (C), two largest recipients of government bailout fund. It was kind of a gamble because at that time, nobody knew exactly what could happen to the two largest banks and the risk of bankruptcy was pretty high. But I wanted to try my luck with both of them. In the worst case scenario, all I could loss was a couple of thousands dollars.
Fortunately, the worst case didn’t happen. Instead both BAC and C stocks have done pretty well since then, though the prices are still far away from the levels that they reached before the crisis. Especially for BAC, the future looks much brighter now than two years ago. Yesterday, BAC CEO delivered the news that investors have been waiting for all along: the bank should be able to “make $35 billion to $40 billion of pretax profit a year” in 2013 when it finally puts the mortgage mess behind it. Plus, BAC also plan to increase its dividend payout in the second half of the year pending regulatory approval (all the big banks that received government bailout now need approval to increase dividends since the government wants to make sure they have sufficient capital set aside in case anything unexpected happens). I am glad that I hang around with bank to finally see my investments get rewarded. The restored dividend may not be as high as the level before the cut, but it’s definitely in the right direction because BAC had a history of increasing dividend (one of the reasons I bought the stock).