Bank of America Series L Preferred Shares Offer 5.8% Yield and 4.4% Conversion Gain
Bank of America’s Series L preferred shares yield 5.8% and its robust earnings coverage requires only 5% of quarterly net income to cover preferred dividends. A forced conversion triggers a 4.4% capital gain if Bank of America common shares remain above the $65 price for 20 of 30 days.
1. Series L Preferred Shares Near Forced Conversion Threshold
Bank of America’s Series L preferred shares, currently yielding 5.8%, are approaching the trigger for a forced conversion into common stock. Under the terms of the issue, if the common shares trade above $65 for at least 20 of 30 consecutive trading days, holders of Series L would be converted at a fixed rate resulting in a 4.4% capital gain. The preferred dividend obligation requires only 5% of the bank’s net income, providing ample coverage and downside protection in the event of market volatility.
2. Institutional Investors Adjust Positions
During the third quarter, Braun Stacey Associates Inc. increased its stake in Bank of America by 6.5%, adding 31,008 shares to reach a total holding of 509,036 shares valued at $26.26 million. Meanwhile, Norges Bank initiated a new position valued at $5.09 billion, Arrowstreet Capital more than doubled its holdings to 17.6 million shares, and OMERS Administration Corp. boosted its stake by over 880% to 4.21 million shares. Collectively, institutional investors now control over 70% of the bank’s outstanding shares, underscoring strong confidence among large-scale allocators.
3. Strong Third-Quarter Results and Dividend Increase
In its latest quarterly report, Bank of America delivered earnings per share of $1.06, surpassing consensus by $0.13, while revenues climbed 10.8% year-over-year. The bank achieved a net margin of 15.7% and a return on equity of 10.8%, driven by growth in lending and wealth-management fees. The board declared a quarterly dividend of $0.28 per share, representing a 30.5% payout ratio and an annualized yield of approximately 2.0%, its eighth consecutive year of dividend increases.
4. CFRA’s Bullish Outlook on Big Banks
Ken Leon, director of equity research at CFRA, told analysts that the upcoming earnings season is poised to highlight resilient fundamentals in the banking sector, with capital markets businesses likely to outperform. He noted that rising interest rates and strong fee income should drive net interest margin expansion and bolster return-on-equity metrics for large regional and global banks, including Bank of America.