Bank of America Reduced Dividend to 1 Cent

This isn’t what I asked for when I started to buy Bank of America (BAC) shares through their DRIP program at ComputerShare (ComputerShare reviews). I was going after their dividend. At $1.29 dividend payment in 2008, BAC made a small, but nice contribution to my passive income last year.

But it doesn’t look like that dividend income is going to last long.

Today, BofA, after losing $2.39 billion in the fourth quarter of 2008, announced that it will cut its quarterly dividend from 32 cents to a mere 1 cent. Of course, when the bank gets another $20 bailout money from the government, it can’t pay out a nice dividend as usual. The government will demand to get paid back first.

The new rescue fund is to help BofA to absorb Merrill Lynch, which it purchased last year when Lehman Brothers collapsed. However, the purchase, as long with BofA’s purchase of troubled mortgage lender Countrywide Financial early, didn’t make BofA stronger. On the contrary, Merrill just posted a massive $15.31 fourth quarter loss. Did Ken Lewis bite off more than he can chew with those purchases?

In total, Bank of America received $40 billion cash infusion from the government, the same amount as Citi got.

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3 Responses to “Bank of America Reduced Dividend to 1 Cent”

  1. mapgirl |  Jan 16, 2009 at 3:52 pm

    I feel your pain. I hold BAC indirectly in BRKB shares. I love a good dividend and lately the best ones I’ve received are from a telecom stock, a few consumer staple stocks and an industrial stock that dabbles in wind power.

  2. Tim |  Jan 17, 2009 at 12:07 pm

    yeah, it sucks. it is the same conditions the govt placed on citi.

    @mapgirl: at least you aren’t affected owning Berkshire, since they have BAC preferred shares and guaranteed 10% div.

    i think the govt forcing these ridiculous div reductions to 1cent is very bad, because it just hurts the regular share holder. people in their calls for not helping shareholders seem to forget that there are lots of normal people who own common stock and we are the ones who lose out.

    i guess the only offset is to continue buying more shares at the lower prices. I’ve been doing this with BAC and C but I’m thinking of just dumping everything, cutting my losses and putting some other bank, but which one is the real question. i guess at this point, i’m in the might as well hold and see if things turn around point, although unless C gets more propping, share prices are going to go under $3, and the prospect of increased earnings breaking the company up does not bode well for any good return and given the govt’s forced reduction of C dividend, there doesn’t seem to be any reason to continue holding C stock. i just don’t get what the govt intends by all this, because it is effectively forcing people, to include institutional shares, to dump the stock. Given how C went, BAC appears to be following in the same footsteps.

  3. Christiansen |  Feb 04, 2010 at 6:02 pm

    You have been totally unfair to your shareholders.