We have recently shared a compilation of the 12 Top Dividend Stocks in the Financial Sector to Consider Right Now. In this piece, we will examine Bank of America Corporation (NYSE:BAC) in relation to other leading dividend stocks within the financial sector currently available for purchase.
In 2024, financial stocks have outperformed the market, showcasing one of the strongest performances across all sectors. While the financial sector at large is predicted to maintain its upward trend, some selected stocks appear to be optimally poised for growth. The broader financial sector has surged nearly 30% this year, exceeding overall market gains and even surpassing the technology sector, which is home to many prominent mega-cap tech firms. The financial index has risen by more than 7% since the beginning of 2025.
The US banking sector continued its growth trajectory in the third quarter of 2024, despite a slowdown in loan growth. The industry experienced a 1.4% sequential rise in total assets during this period. According to S&P Global Market Intelligence, the 50 largest banks in the US collectively added $377.22 billion in assets in the third quarter, with 35 of these institutions reporting growth. This is a notable revival from the second quarter, when these banks experienced a combined asset decline of $128.01 billion from the first quarter. As of September 30, the total assets held by the 50 largest US banks reached $23.985 trillion, with 25 of the 39 banks having assets between $50 billion and $500 billion reporting an increase in assets during the third quarter.
Also, check out: 10 Low PE High Dividend Stocks to Invest In Now
Following President-elect Donald Trump’s victory in the 2024 election, financial stocks saw a significant and widespread rally. This upturn was primarily driven by market optimism surrounding a potentially relaxed regulatory framework in 2025, especially concerning mergers and acquisitions. By November, the median total return for 211 banks monitored by S&P Global Market Intelligence had increased to 13.4%, considerably outpacing the broader market’s gain of 5.9%.
Another significant contributor to the performance of banks was the Federal Reserve’s announcement regarding its annual industry stress test parameters. The 2025 test predicted less severe economic shocks than in previous years, although it did foresee a rise in U.S. unemployment to 10% and a 33% drop in home prices. The latest scenarios offered milder expectations in unemployment and reductions in stock and real estate values compared to earlier tests. Barclays analyst Jason Goldberg emphasized these changes in his report, “2025 Stress Test: Easier Scenarios than the Last Two Years.” Bank of America analyst Ebrahim Poonawala noted that the easing of stress test criteria and enhanced predictability might result in banks holding smaller capital buffers later in the year.
The financial sector is inherently cyclical, meaning its performance closely mirrors the overall economic health. The US economy has shown steady growth, elevating the chances of a “soft landing”—a scenario likely to alleviate fears of a potential mild recession that could affect financial stocks. Analysts suggest that heading into 2025, a notable shift in the outlook for interest rates contrasts with previous years. The latter half of 2024 witnessed the initiation of a new rate cycle, with the Federal Reserve instituting its first rate cut since the onset of the pandemic. For banks, changing interest rates present opportunities as well as challenges. While higher rates can enhance net interest margins, fluctuations can also influence lending activities and overall profitability.
There is a growing enthusiasm among investors for financial stocks, largely due to their attractive dividend yields. A report from Janus Henderson highlighted that the financial sector experienced a year-over-year dividend payout growth of 7.7%. The industry disbursed $72 billion in dividends during the third quarter of 2024.
For this analysis, we scrutinized Insider Monkey’s database of 900 hedge funds as of Q3 2024 to pinpoint dividend stocks in the finance sector. These firms offer diverse financial services, encompassing banking, insurance, investment management, and financial planning, and they present stable dividend yields. From the resulting list, we selected 12 stocks that attracted the highest number of hedge fund investors, ranking them based on hedge funds’ sentiment toward them.
Why do we focus on the stocks favored by hedge funds? The rationale is straightforward: our research indicates that emulating the top stock choices of leading hedge funds can result in market outperformance. Our quarterly newsletter employs a strategy that selects 14 small-cap and large-cap stocks each quarter and boasts a 275% return since May 2014, outperforming its benchmark by 150 percentage points. (see more details here).
Is Bank of America Corporation (BAC) The Best Financial Sector Dividend Stock To Buy Right Now?
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Number of Hedge Fund Holders: 98
Bank of America Corporation (NYSE:BAC), headquartered in North Carolina, is a prominent financial services company and investment bank. The firm has several key advantages that solidify its market presence and grant it a competitive edge over traditional banks and fintech companies. Its vast distribution network, which integrates a strong digital platform with an extensive branch network, supports a low-cost deposit base and attracts new clients, driving revenue growth. Furthermore, the company’s large scale aids in efficient cost management, contributing to its consistent profitability. Its reputable brand enhances its attractiveness to both existing and prospective clients.
Over the past year, Bank of America Corporation (NYSE:BAC) has yielded nearly a 38% return for its shareholders. The company reported robust earnings for the fourth quarter of 2024, with revenues totaling $25.3 billion, up from $22 billion in the same quarter the previous year. Net income soared to $6.7 billion, a significant increase from $3.1 billion a year earlier. Additionally, the bank grew its customer base by adding 213,000 new consumer checking accounts, achieving six consecutive years of quarterly growth. The firm also returned $2 billion to shareholders through dividend distributions.
On January 29, Bank of America Corporation (NYSE:BAC) announced a quarterly dividend of $0.26 per share, maintaining consistency with its previous dividend. The stock currently boasts a dividend yield of 2.21% as of February 16. It stands out as one of the top dividend stocks on our list, having paid regular dividends to shareholders for 27 consecutive years.
In summary, BAC is ranked 2nd in our list of top dividend stocks in the financial sector to buy at the moment. While we recognize the investment potential of BAC, we believe that certain AI stocks offer even greater prospects for higher returns in a shorter duration. For those seeking a promising AI stock that trades at less than 5 times earnings, explore our report on the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article was originally published by Insider Monkey.
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