Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Bank of America Corporation (NYSE:BAC) is about to go ex-dividend in just 4 days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Bank of America’s shares before the 5th of December in order to receive the dividend, which the company will pay on the 26th of December.
The company’s next dividend payment will be US$0.28 per share, on the back of last year when the company paid a total of US$1.12 to shareholders. Last year’s total dividend payments show that Bank of America has a trailing yield of 2.1% on the current share price of US$53.65. If you buy this business for its dividend, you should have an idea of whether Bank of America’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Fortunately Bank of America’s payout ratio is modest, at just 29% of profit.
Generally speaking, the lower a company’s payout ratios, the more resilient its dividend usually is.
See our latest analysis for Bank of America
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it’s a relief to see Bank of America earnings per share are up 6.9% per annum over the last five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Bank of America has delivered 19% dividend growth per year on average over the past 10 years. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
