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Bank of America Ups Quarterly Dividend by 25%

The bank is the latest to respond to changes in federal tax laws.

Bank of America

(BAC) - Get Bank of America Corp Report

raised its quarterly dividend Wednesday in response to changes in federal tax laws.

The bank will now pay shareholders 80 cents a share every quarter, a 25% increase over the 64 cents it paid previously. The next dividend is payable on Sept. 26 for shareholders of record on Sept. 5. The yield on the new dividend amount now stands at 4.1%, up from about 3.3% previously.

"The reduced tax rate on dividends makes it as efficient for us to return capital to shareholders directly through dividends as through stock buybacks," Bank of America Chairman and Chief Executive Ken Lewis said in a statement. "By paying a higher dividend, we give shareholders more flexibility in deciding whether to use their share of our profits for spending or reinvestment."

Bank of America, one of several major banks to raise dividend payments recently, now boasts the second-highest dividend yield among the big regional banks, trailing

Fleet Bank


. At 35 cents a quarter, Fleet now yields about 4.6%.

US Bancorp

(USB) - Get U.S. Bancorp Report

, with a quarterly dividend of 20 cents, yields 3.3%.

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National City Corp


announced a 20-cent quarterly dividend on April 28, with a current yield of 3.8%.

On Wednesday,

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

more than doubled its quarterly dividend to 25 cents from 12 cents, bringing its current yield to 1.17%.

The average yield on dividends paid by big regional banks is around 3.1%.

This recent activity in the wake of the sweeping changes in federal tax code passed by Congress has bolstered speculation that more and more corporations will respond by increasing their dividend payments to shareholders. Capital-gains taxes on dividends were lowered from a top rate of 38.6% to 15% when President Bush signed the third-largest tax cut in history into law on May 28.

Shares of Bank of America were up 2.2%, or $1.70, at $79.25 on Wednesday afternoon.

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