Taking a look at the five year chart for financial juggernaut Bank of America Corporation (NYSE:BAC), one will notice a parabolic surge since late-2016 as investors have continued to pile into U.S. financials spurred by expectations of an improving landscape for growth as well as expectations that interest rates will continue higher, widening the lending spreads which are the basis for how banks make money over time.
The story has little changed since the election of the Trump Administration in the U.S., and investors have continued to clamor for financials and financials-related stocks as interest rates indeed continue to move higher, reflected in improving profitability at Bank of America and its peers.
Strong earnings and improving efficiencies within the lender’s operations have allowed Bank of America to continue to maintain a very robust share buyback program, while delivering a modest but meaningful dividend to investors.
The expectation among most analysts with respect to Bank of America’s dividend is that investors can expect to see some growth on this front moving forward, given the expectation that earnings growth will continue as well as a relatively low dividend payout ratio.
From a fundamental perspective, Bank of America still looks cheap, especially compared to many of its Canadian peers, trading a forward price to earnings (P/E) multiple of just over 10. The bank also has a PEG (P/E to growth) ratio of 0.54, meaning the company is expected to grow at a much faster rate than its valuation multiple, signifying value for investors who believe in the efficacy of the PEG ratio.
Invest wisely, my friends.
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