Bank of America 'Very Likely' to Up Dividend in '11: Analyst

NEW YORK ( TheStreet) -- Bank of America ( BAC)will "very likely" manage to increase its dividend later this year, according to a research report published after Wednesday's close.

"While we don't expect Bank of America to be among the first banks to increase its common stock dividend, it has fulfilled all terms of TARP repayment and positive commentary related to the ongoing stress tests could support improved investor confidence in the sector," writes Raymond James analyst Anthony Polini.

Polini also raised his target price on Bank of America to $24 from $21. He argues Bank of America will meet, or exceed, Wall Street earnings estimates when it reports results Friday the 21st, driven by credit improvements and improved investment banking revenues.

While several banks, including JPMorgan Chase ( JPM), Wells Fargo ( WFC), PNC Financial ( PNC)and U.S. Bancorp ( USB) have been expected to raise their dividends, analysts in general are less convinced Bank of America and Citigroup ( C) will be able to do so.

Bank of America shares were nonetheless under pressure early Thursday as Citigroup analyst Keith Horowitz removed Bank of America from his list of "top picks live," which, according to Horowitz's note "encompasses short-term catalyst driven stocks." Horowitz retains a longer-term buy rating on the stock and an $18 target price, but he worries analyst estimates for 2011 are too high. Also, he believes Bank of America stock's near term performance "could be impacted by ongoing noise from mortgage repurchase issues."

Bank of America settled a dispute with Fannie Mae ( FNMA.OB)and Freddie Mac ( FMCC.OB)over mortgage repurchases, but remains exposed to mortgage backed securities issued by other entities that include mortgage that were poorly underwritten by Countrywide, which Bank of America acquired in 2008. Many other banks, including Wells Fargo, Citigroup , JPMorgan and Goldman Sachs ( GS) are exposed to MBS repurchases, but their exposures are widely believed to be lower than Bank of America's.

Horowitz nonetheless argues the MBS putbacks "will ultimately prove to be manageable" for Bank of America, arguing the costs to the bank "will be spread out over several years." Additionally, he argues the current valuation of 1.1 times estimated fourth quarter tangible book value "does not fully represent the underlying return potential of Bank of America longer term." He believes "normalized" return on total equity "will be in the 15-16% range.

Bank of America shares were down 0.80% to $14.87 in mid-morning trading, versus a 0.66% drop for Wells Fargo, a 0.20% drop for Citigroup and a 0.24% drop for JPMorgan.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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