Bank of America Corporation(NYSE:BAC) saw an impressive run over the last few years.
Even in the low interest rate environment and through the 2020 downturn, the stock still saw a 177% increase in price over five years. The stock seems to rather quickly reverse any pullback, gaining almost 10% in the last week.
On the back of solid 7-day performance, let's check what role the company's fundamentals have played in driving long-term shareholder returns.
During five years of share price growth, Bank of America achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is lower than the 23% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Bank of America has improved its bottom line lately, but will it grow revenue? You can find the analyst's opinion about the revenue growth in the future.
Dividend Impact on Returns
It is vital to consider the difference between total shareholder return (TSR) and share price return when looking at investment returns. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Bank of America, it has a TSR of 206% for the last 5 years.
With the 2% dividend, the stock is in line with the industry. Although the dividend has been stable and increasing over the last 10 years, the payout ratio is low at 24%. The company has plenty of options to increase the dividend (as it already did this year) and a large margin of safety to ensure it won't cut it in any unforeseen circumstances.
A Different Perspective
Bank of America shareholders received a total shareholder return of 60% over the last year, including the dividend.That gain is better than the annual TSR over five years, which is 25%, pointing to positive market sentiment.
This may hint at some real business momentum in the best-case scenario, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Bank of America has 1 warning sign we think you should be aware of.
If you are interested in other exciting stocks, you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on US exchanges.
What are the risks and opportunities for Bank of America?
Trading at 38.6% below our estimate of its fair value
Earnings are forecast to grow 6.3% per year
High level of non-cash earnings
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.
Bank of America
Bank of America Corporation, through its subsidiaries, provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
|Analysis Area||Score (0-6)|
Read more about these checks in the individual report sections or in our analysis model.
Flawless balance sheet established dividend payer.