Bank of America (BAC) is keeping its dividend of $0.64, putting to rest (for now) fears that the bank would cut it. BAC also announced a 75 million share repurchase program which is permitted to spend $3.75 billion over 12 to 18 months. The program replaces an expiring auhtorization program from 2007 for 200 million share.
BAC insists it has plenty of capital, and now it’s putting more money where it’s mouth is. BAC’s dividend has an 8.6% annual yield, and, as Tom Hutchison at Motley Fool noted in June, it’s now paying more in dividends than it earns:
Bank of America’s dividend is currently $2.56 per share, for an 8.6% yield. The 2008 consensus analyst estimate for the bank’s earnings is $2.66 per share. That means that to keep the dividend, the bank will have to pay out virtually everything it earns. Put another way, that’s nearly a 100% dividend payout ratio, compared with the bank’s historical payout ratio of 40% to 50%.
The consensus estimate for BAC’s FY08 earnings has since dropped to $2.40.
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