Bank of America: When Will It Raise the Dividend?

NEW YORK ( TheStreet) -- Bank of America ( BAC) has said it did not seek permission from the Federal Reserve to raise its dividend in 2012, but bulls are hoping for a surprise hike from the bank nonetheless.

Bank of America was embarrassed last year when it sought Fed approval for a dividend increase and didn't get it. The Fed is expected to rule on whether the 19 largest banks can increase their dividends at the end of next week, following the latest in now annual "stress tests" of bank balance sheets mandated by the Dodd-Frank financial reform law passed in 2010.

In an interview last week, Rochdale Securities analyst Dick Bove predicted Bank of America would raise its dividend by the second quarter of this year.

Stifel Nicolaus analyst Chris Mutascio also is looking for Bank of America to raise its dividend, according to a report he published Friday March 9. While Mutascio does not discuss Bank of America in the body of his report, he notes in a chart accompanying the report that he estimates the bank will pay out $900 million in dividends in 2012 versus a Wall Street consensus estimate of $577 million in dividend payments for Bank of America this year.

Mutascio's view is especially surprising since on the whole he is more bearish that his analyst counterparts at other institutions about the prospects for big dividend increases in the banking sector.

In explaining the rationale for his overall bearishness on dividends, Mutascio argues regulation post crisis has tended to be tougher than the market expects as a whole. He also believes that "the current macro environment will cause the Fed to err on the side of caution," and that "management teams realize this," and so will go into the stress tests "asking for less in earnings payouts than they might otherwise ask for in a more confident or less volatile economic back drop."

Asked why he was more bullish than the rest of the Street on Bank of America's dividend prospects, Mutascio replied via email. "We have a very minor increase in our model to $0.04 per quarter late in the year. I would not characterize our stance as bullish considering you are talking about very small numbers."

Bank of America has been unloading assets and converting preferred shares to common shares in order to strengthen its balance sheet. A capital strength ratio known as Tier 1 common improved to 9.86% at the end of 2011 versus 8.6% at the end of 2010. Looking at another measure, its tangible common equity (TCE) ratio of 6.5% is below the 7.9% posted by Citigroup but higher than JPMorgan Chase ( JPM)'s 5.5%, according to research from RBC Capital Markets analyst Gerard Cassidy. The median TCE for large caps tracked by Cassidy is 7.7%.

Despite the fact that these numbers show Bank of America is in the same ballpark as peers, many analysts, including Cassidy, Oppenheimer analyst Chris Kotowski and Sterne Agee analyst Todd Hagerman are predicting no near-term dividend hike. Kotowski also noted in a recent report that the options market is assuming Bank of America won't raise its dividend this year.

Hagerman estimates Bank of America will raise its dividend in 2013. In a March 5 report, he projects a 13 cent per share dividend for the bank next year.

What about you? When do you expect Bank of America to raise its dividend?

When Will Bank of America Raise Its Dividend?

1Q 2012
2Q 2012
3Q 2012
4Q 2012
After 2013

-- Written by Dan Freed in New York.

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