Bank of America (BAC 2.79%) has become one of the world's largest financial services companies. While it survived and came out of the Great Recession as a bigger firm, it wasn't smooth sailing. Its current offerings include traditional banking (e.g. deposit savings and mortgage loans), investment banking, and investments.
Given that the bank's earnings are tied to the economic cycle, it's prudent to determine the dividend's safety before figuring out your annual dividends.
Once you determine that Bank of America's current dividend payment is secure, how many shares do you need to own to generate $1,000 in dividends?
Image source: Getty Images.
Payout ratio
In 2008, during the financial crisis, Bank of America's board of directors slashed the quarterly dividend in half to $0.32 a share. It quickly cut it to a penny. The company currently pays a $0.26 dividend each quarter.
NYSE: BAC
Key Data Points
Dividend decisions aren't completely in Bank of America's hands, however. It must show regulators that it has sufficient capital.
While it's difficult to determine if regulators will restrict payments, investors can look at the payout ratio to see how much of the bank's profit it pays out as dividends. Bank of America's payout ratio stands at 35%, which should offer some comfort.
Number of shares needed
Bank of America currently pays out $1.04 per share each year in dividends. If you're targeting $1,000 in yearly payments, you'd need to own 962 shares. That assumes the payment stays constant. Obviously, if it goes up, the calculation will prove conservative.
With a stock price of about $42, buying 962 shares will require a roughly $40,400 investment outlay.
Bank of America's stock offers a 2.5% dividend yield. That's 1.2 percentage points higher than the S&P 500 index.
