To buy BAC or not to buy

Financial Planning - Financial planning in general. (Moderated) 

  Yahoo!   Google   Windows Live   del.icio.us   digg   Netscape

Subject Author Date To buy BAC or not to buy W. Wells 06-06-2008  Re: To buy BAC or not to buy Elle 06-06-2008  Re: To buy BAC or not to buy kastnna 06-06-2008  Re: To buy BAC or not to buy PeterL 06-06-2008
Posted by W. Wells on June 6, 2008, 8:25 am BAC has a dividend rate of 8% right now. They promise they are not going to cut their dividends. However many financial folks say the banks are crazy to borrow money on one hand and pay out billions to dividends with the other. The last president of a bank that said they were not going to cut dividends just got fired. WB. Comments? -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Elle on June 6, 2008, 11:24 am Some comments on the basics: I am doubtful bank's financial records are transparent enough to say much other than, if you buy BAC or any other bank (with at least ostensibly decent fundamentals, insofar as these can be gleaned), plan on holding for the long run. Note that BAC's dividend payout ratio exceeds 100%. On the other hand, NYB (a much smaller bank with arguably a different focus) has had a DPR exceeding 100% for a couple years now, said a couple years ago it would not slash dividends, and has not. Washington Mutual slashed its dividend in December and then slashed it again to nearly 0 a few months later. Many Citigroup officials said a dividend cut was unlikely, then the C Board cut the dividend. I'd say it's a good sign that BAC may be buying Countrywide. I would review the period from about 1990-1991 concerning dividend cuts and banks folding, since IMO there are parallels to today. The typical large bank's dividends and share price recovered. There's a reason banks historically trade at lower P/Es than the S&P. Namely, risk. OTOH, many of the observations above use numerology. I'd say if one feels compelled to hold BAC, buy a small position, well south of 5% of your total portfolio, and reinvest dividends while the share price seems low. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by kastnna on June 6, 2008, 11:55 am > BAC has a dividend rate of 8% right now.  They promise they are not going to > cut their dividends. However many financial folks say the banks are crazy to > borrow money on one hand and pay out billions to dividends with the other. > The last president of a bank that said they were not going to cut dividends > just got fired. WB. What good is an 8% dividend if the stock price falls 40%? That's not my kind of investment. Of course, I'm still waiting on that broken part for my crystal ball, so who knows... And what good is their promise? A) they are under no obligation to keep it and B) if they DO honor their word it is likely preventing all those "financial folks" and their listeners from buying the stock (thus keeping the price down). It sounds like a lose-lose situation to me. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by PeterL on June 6, 2008, 11:56 am > BAC has a dividend rate of 8% right now.  They promise they are not going to > cut their dividends. However many financial folks say the banks are crazy to > borrow money on one hand and pay out billions to dividends with the other. > The last president of a bank that said they were not going to cut dividends > just got fired. WB. > > Comments? > What good is an 8% dividend if the stock price sinks 8%? Or more? -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.