Dividends4Life: Bank of America Headed Back to the TARP ATM

Bank of America Headed Back to the TARP ATM

Posted by D4L | Friday, January 16, 2009 | | 2 comments »

Someone once said that there is no such thing as bad publicity. I think Bank of America (BAC) would take exception to that statement. BAC has been in the news all week and it has not been flattering or reassuring to it shareholders. This once proud dividend aristocrat continues to struggle even after slashing its dividend.

Monday, Citigroup (C) issued some cautious comments on BAC and said investors should be braced for a very challenging 4Q. C cut Q4 EPS estimates, expects another dividend cut and expects the company raise fresh capital, but will wait for a better environment. Ultimately, C sees cumulative credit losses of $165 billion for 2008-2011, with only about 33% recognized so far.

Yesterday it was reported that BAC needs more aid from the government for its Merrill Lynch acquisition. To date, BAC has received $25 billion from the Treasury Department's Troubled Assets Relief Program (TARP). According to the The Wall Street Journal, BAC needs additional assistance to deal with an ugly quarterly report from Merrill. By mid-day Thursday shares were down 20% to around $8.

Not all news was bad this week. Instead of looking for a government handout, several companies continue to increase the cash given to their shareholders through higher dividends. Here are a few:

  • Robbins & Myers (RBN) Increases Dividend to $0.04/share (Yield 0.96%)
  • CVS Caremark (CVS) Boosts Qtr. Dividend 10.5% to $0.0725 (Yield 1.1%)
  • Cintas (CTAS) Boosts Annual Dividend to $0.47 (Yield 2.02%)
  • Linear Technology (LLTC) Boosts Qtr. Dividend to $0.22/share (Yield 3.98%)
  • Monsanto (MON) Boosts Qtr Dividend 10% to $0.265 (Yield 1.38%)
  • Pentair (PNR) Boosts Qtr. Dividend from $0.17 to $0.18 (Yield 2.97%)
  • Shaw Communications (SJR) Raises Annual Dividend to $0.053 (Yield 3.80%)
  • Family Dollar (FDO) Raises Qtr. Dividend by 8% to $0.135/share, (Yield 1.89%)
When BAC cut its dividend it no longer met the criteria for inclusion in my income portfolio. There is a reason that my most basic investing rule is to immediately sell a stock after it cuts its dividend; I BAC sold at $28.51/share after its first dividend cut.

Disclosure: No position in the aforementioned securities.

(Photo: Steve Woods)

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2 comments

  1. Chris // January 16, 2009 at 11:22 AM

    How worried are you about the new TARP program limiting future dividends for your financial stocks? I am tempted by WFC, but it just seems too unclear what is going on.

  2. Dividends4Life // January 17, 2009 at 1:01 PM

    Chris: It does concern me to the point i will not make any new investment in a company that is participating in TARP.

    Best Wishes,
    D4L

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