It should be no surprise that the best-performing stock on the Dow Jones Industrial Average (^DJI -0.98%) for any year in particular rarely follows up with such a performance the following year. Indeed, this is what the so-called Dogs of the Dow theory is all about.
But this year could be different. In 2012, as you probably know by now, Bank of America (BAC -1.07%) was far and away the winner, more than doubling in share price. This year, assuming things continue on their current trajectory, it could mark another victory -- increasing substantially at the very least.
Three huge things happened today which could fuel gains for the remainder of the year. First, along with other too-big-to-fail banks such as JPMorgan Chase (JPM 0.15%) and Citigroup (C -1.09%), B of A provided its submission for the now-annual stress tests completed by the Federal Reserve. Assuming B of A passes, which I believe it will, it could very well get the go-ahead to return more capital to shareholders via dividends or share repurchases.
Second, it entered into a multibillion-dollar settlement with Fannie Mae that extinguishes effectively all of the latter's claims against B of A dating back to the financial crisis. While the settlement was unquestionably expensive, totaling more than $10 billion, it removes the most significant reason that the bank's shares trade for roughly half of book value.
And third, a consortium of banks, again including B of A as well as Wells Fargo (WFC -1.11%) and eight other mortgage servicers, have agreed with regulators to pay a combined $8.5 billion to resolve claims related to foreclosure abuse. Again, while expensive, it removes yet another cloud from over the heads of B of A and its shareholders.
Now, let me be clear, I'm not predicting that B of A's shares will double again this year -- unfortunately my crystal ball appears to be out of commission. What I am saying, however, is that these three things will unquestionably fuel B of A's earnings going forward. And, assuming that higher earnings translate into dividends and share repurchases, there's every reason to believe that B of A's share price will respond accordingly.
