We came across a bullish thesis on Bank of America Corporation on The Passive Income Portfolio’s Substack. In this article, we will summarize the bulls’ thesis on BAC. Bank of America Corporation’s share was trading at $52.97 as of January 19th. BAC’s trailing and forward P/E were 13.90 and 12.15 respectively according to Yahoo Finance.
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Bank of America Corporation, through its subsidiaries, provides various financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. BAC is a high-quality financial franchise currently trading at a discount due to near-term noise around net interest income (NII), commercial real estate exposure, and unrealized losses on its held-to-maturity (HTM) securities.
While market sentiment remains skeptical, BAC’s true strength lies in its long-term capacity to generate distributable capital, underpinned by a massive, low-cost deposit base and diversified revenue streams, including Global Banking and Merrill’s wealth management platform. These factors provide a stable funding foundation and counter-cyclical fee income, insulating the bank from cyclical lending pressures.
The dividend thesis is compelling: BAC maintains a conservative EPS payout ratio of roughly 32%, allowing significant capital retention for buybacks and future dividend growth. Its track record shows 12 consecutive years of dividend increases, with high single-digit growth rates over the past three to five years. Combined with share count reduction through buybacks, this positions BAC for sustainable long-term dividend growth of 6–8% annually, supporting a total return potential of approximately 9–10% when factoring in the current 2.1% yield.
BAC’s balance sheet is robust, with a strong CET1 ratio and prudent liquidity and loan-to-deposit metrics, ensuring resilience against regulatory and credit shocks. Key risks include stricter Basel III requirements, adverse CCAR outcomes, CRE market stress, and worsening HTM portfolio losses; a CET1 ratio falling below 11% would signal a potential breach of the dividend growth thesis.
Overall, BAC represents a rare “Core Compounder with a Cyclical Value Lean,” offering a well-capitalized, low-risk platform for long-term dividend-focused investors. Current valuations provide a strategic entry point, with the $34 “buy-under” price embedding margin of safety while capturing its durable growth and shareholder return potential.
