Q: Bank of America bac was recently sporting a dividend yield of more than 11%, doesn't that mean the bank is nearly certain to cut the dividend?
A: There are only a few things investors see as their right. One of those is high and rising dividends from large banks.
Many of the banks, including Bank of America, are part of an exclusive and respected group called the Standard & Poor's Dividend Aristocrats. These are big companies in the S&P 500 index that have increased their dividends to common share holders for at least the past 25 years.
You can read more about the Dividend Aristocrats here. These companies win the respect of investors because they maintain restraint during good times so they can continue to boost dividends during challenging times. In addition to Bank of America, dividend aristocrats include well-known companies such as Coca Cola ko, General Electric ge and Walgreen wag. Other banks on the list include Fifth Third Bancorp fitb, KeyCorp key, M&T Bank mtb, Regions Financial rf and U.S. Bancorp usb.
You can see Bank of America's history of raising its dividend here since 1993.
Certainly, though, with the current financial crisis and need to raise capital, many banks are under pressure. Several have cut their dividends, including Citigroup c. And Bank of America's recent acquisition of Countrywide Financial could put some short-term strain on the company's cash.
It was the collapse in Bank of America's share price that drove the yield up to levels that started looking suspiciously high, near 12%. But since mid-July, as the stock price rallied almost 80%, the dividend yield has come down toward 7.5%.
I don't have any inside information on Bank of America's plan regarding its dividend. But on July 23, the company declared it's regular quarterly dividend would be unchanged at 64 cents a share.
That ends a long streak of increasing dividends, which is difficult to maintain. And it could be an early warning that the dividend at current levels is in jeopardy. That's about the best indication you'll get using publicly available information.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at firstname.lastname@example.org. Click here to see previous Ask Matt columns.