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want to be invested alongside Warren Buffett looking for a market beating yield backed by double digit dividend growth like the idea of getting a high quality dividend growth stock on sale then you have to check out today's video he is a best-selling offer 30 year old Jason fever has a plan this guy retired at only 33 years old I don't know if I know too many people that have accomplished something like that he's really kind of a guru when it comes to passive income before I get into today's content please give us a big thumbs up if you find Value in our videos helps us to get the word out and grow the channel and I'd really appreciate it and make sure to stay tuned until the end of the video for our special news announcement I want to tell you about a high quality stock that pays big growing reliable dividends these growing Dividends are funded by growing profit because this business is one of the largest banks in the world the banking business model dates back centuries and guess what it'll almost certainly persist for centuries more simply put our society doesn't work without the proper flow of capital which leads straight to Banks that's part of why Warren Buffett has invested billions of dollars into this particular bank and it's also part of why I see nothing but growth ahead for Revenue profit and the dividend I personally invest invested in stocks just like this one on my way to going from below broke at age 27 to financially free at 33.
by the way I explain exactly how I Chief Financial Freedom in just six years in my early retirement blueprint if you're interested you can download a free copy of my early retirement blueprint using the link in the description of this video getting back to the stock I'll tell you about today though perhaps best of all it looks undervalued right now price is what you pay but value is what you get why is that important because buying a dividend growth stock when it's undervalued should provide for a higher yield greater long-term Total return potential and reduced risk with this in mind I want to share with you an opportunity a recently came across in shares of Bank of America Corp which apparently trading at a significant discount today Bank of America Corp stock ticker BAC is a multinational Investment Bank and financial services holding company founded in 1784 Bank of America is now a 284 billion dollar by market cap banking Behemoth that employs almost 220 000 people operating as the second largest American money center Bank by assets Bank of America has approximately 4 000 branches across the U.S with representation in all 50 states Bank of America also has significant International exposure with a global footprint that extends across 35 countries the bank reports results across the following four business segments consumer banking 46 percent of fiscal year 2022 net income global banking 32 Global wealth and Investment Management 15 and Global markets six percent there's a big reason why Warren Buffett is heavily invested in Bank of America with a position market value of nearly 36 billion dollars Bank of America represents the second largest position in the common stock portfolio that Buffett oversees for Berkshire Hathaway Inc stock ticker brk.b that reason the float the core banking business model is one where money is made from money and not just money but other people's money access to large sums of low-cost and low-risk capital via deposits provides a bank the ability to fund loans and other Ventures that generate attractive returns this is why the business this model is so lucrative it's also an enduring business model banking dates back to Antiquity our society has long been dependent on Banking and the flow of capital and unless we want to go back to a hunter-gatherer existence our society will continue to be dependent on Banking and the flow of capital this basic framework is made to be even more powerful by the fact that the bank is situated inside the world's most powerful economy Bank of America's Roots date back centuries almost right back to the founding of the United States itself and I see no reason why can't continue to prosper for centuries more right alongside USA which gives excellent visibility into more Revenue profit and dividend growth to date the company has increases dividend for nine consecutive years not the longest streak out there as this Bank like many other Banks was severely impacted by the GFC but the five-year dividend growth rate of 17.1 percent shows atonement for past issues now some of that high growth rate has been propelled by the fact that the dividend was coming off of such a low base however the current yield of 2.5 percent is high enough so as 2 not required double digit dividend growth in order to make sense of the investment that market being yield by the way is 40 basis points higher than its own five-year average I imagine shareholders would be satisfied with high single digit dividend growth from here and with a payout ratio of only 27.6 percent the dividend is healthy and easily positioned for a lot more growth ahead I like dividend growth stocks What I Call The Sweet Spot a yield of between 2.5 percent and 3.5 percent paired with a high single digit or higher dividend growth rate the yield is on the low end of that range but the high dividend growth rate compensates for this very good dividend numbers looking at business growth Bank of America raised its revenue from 89.8 billion dollars in fiscal year 2013 to 95 billion dollars in fiscal year 2022.
that's a compound annual growth rate of 0.6 percent not great I'd certainly like to see a higher number here however it must be pointed out that the last decade was extremely challenging for banks low interest rates heavy-handed regulation and a lumpy economy have conspired to constrain the growth of banks meanwhile earnings per share Grew From 90 cents to 3.19 over this period which is a compound annual growth rate of 15.1 percent thanks to prolific BuyBacks and a general Improvement in profitability metrics there's been plenty of excess bottom line growth and this is what has fueled a lot of that big dividend growth regarding the BuyBacks Bank of America has reduced its outstanding share count by almost 30 percent over the last decade looking forward cfra forecast that Bank of America will compound Insurance per share at an annual rate of six percent over the next three years it's an interesting forecast I say that because Bank of America compounded its earnings per share at over 15 annually during an extremely difficult decade with higher rates a strong consumer and the GFC far behind us the future should look even brighter than the past but I actually like that cfra's airing on the side of caution here there is good reason to be cautious cfra sums it up best with this passage and I quote the bank does have exposure to an economic downturn interest rate volatility and weaker loan demand from both consumer and Commercial customers unquote there are concerns that the US could be staring down a recession soon with the a possibility of a downturn coming up it makes a lot of sense to peel back the growth expectations from a bank after all the collective banking industry is the spearhead of the economy well a large institution like Bank of America will likely feel the effects of a recession very directly however a recession is definitely not a foregone conclusion and I do consider myself cautiously optimistic on 2023 and Beyond I'd believe that Bank of America can and should do better than cfra is giving them credit for besides even if cfra's load number is what comes to pass Bank of America can still grow its dividend at a high single digit rate for the foreseeable future the low pale ratio gives them some leeway on this front and if Bank of America grows the business something closer to 10 that sets the dividend up for like growth when you're starting off with that 2.5 yield that's a compelling combination of yield and growth moving over to the balance sheet I see nothing to indicate anything other than a rock solid financial position the bank has 3.1 trillion dollars in total assets against 2.8 trillion dollars in total liabilities Bank of America's long-term senior debt has investment grade credit ratings standard and poorest gives them an A minus Moody's A2 Fitch a a minus profitability is robust and there's even been some consistent Improvement across the board over the last five years the firm is average annual net margin of 26.6 percent annual return on Equity of 9.7 net interest margin came in at just under 2 last fiscal year Bank of America is a financial Powerhouse headquartered in the world's economic Powerhouse and the company is protected by durable competitive advantages such as massive economies of scale High switching costs unique Financial expertise and built-up relationships of course there are risks to consider litigation regulation and competition or omnipresent risks in every industry I'd argue that all three of these risks are elevated for a large Bank banks are highly exposed to economic Cycles a recession can hurt the bank's income statement through reduced loan demand and the balance sheet through higher loan losses while the absolute size is an advantage it also limits the relative growth that can be produced ongoing changes in financial technology analogy may make it easier for upstarts to take market share Bank of America's International footprint exposes it to geopolitics and different currencies I see these risks as quite manageable especially when weighed against the overall appeal of the Enterprise that appeal is Amplified by what I believe is a low valuation the p e ratio is 11.3 Banks usually command low earnings multiples yeah but after the Stock's nearly 30 percent drop in pricing from its 52 week high this seems unusually low the fighter average B ratio for the stock is 13.
we can see that the price to book ratio of 1.2 is also low and is right in line with its own five year average and the yield as noted earlier is substantially higher than its own recent historical average I value chairs using a dividend discount model analysis I factored in a 10 discount rate in a long-term dividend growth rate of 7.5 percent with the long-term earnings per share and dividend growth rates respectively both being well over this rate I don't think I'm being overly aggressive with the model keep in mind the payout ratio is very low and even with cfra's cautious near-term earnings per share growth forecast there's no reason why Bank of America can't afford a high single digit dividend growth rate straight through while I acknowledge that the next year or two may see modest dividend increases from a prudent management team the long-term path ahead looks better than the one that's already been traveled and I must say that prior path looks really good in and of itself the dividend discount model analysis gives me a fair value of 37.84 the reason I use the dividend discount model analysis is because a business is ultimately equal to the sum of all the future cash flow it can provide the dividend discount model analysis is a tailored version of the discounted cash flow model analysis as it simply substitutes dividends and dividend girls for cash flow of growth it then discounts with future dividends back to the present day to account for the time value money since a dollar tomorrow is not worth the same amount as a dollar today I find to be fairly accurate way to Value dividend growth stocks Morningstar rates BAC as a three-star stock with a Fair Value Estimate of thirty seven dollars Safari rates BAC as a four star buy with a total month Target price of 43 three dollars I came out very close to where Morningstar is at averaging the three numbers out gives us a final evaluation of 39.28 which would indicate the stock is possibly nine percent undervalued here's the bottom line guys Bank of America Corp is a financial Powerhouse headquartered in the world's economic Powerhouse the last decade was surprisingly great for the bank and the next decade could be even better with a market beating yield a double-digit dividend growth rate a low payout ratio nearly 10 consecutive years of dividend increases and the potential that shares are nine percent undervalued long-term dividend growth investors ought to consider investing in this company alongside Warren Buffett and now for a special news announcement Comcast Corporation stockticker cmcsa recently printed great numbers in their Q4 earnings report the company beat on both the top line and bottom line and this note from the CEO sums it up best and I quote the company achieved the highest levels of Revenue adjusted ebitda and adjusted earnings per share in our history and returned a record 17.7 billion dollars of capital shareholders unquote Gotta Love record numbers the dividend got boosted BuyBacks are on nothing to dislike here which is why it's one of my top five dividend growth stocks for February 2023.
keep an eye on this one thanks so much for watching I hope you enjoyed today's video give us a like if you did and let us know in the comments what you think about this stock please make sure to subscribe to the channel and ring that notification Bell so you don't miss out on new content also take a look in the description box below for some important links including the link to my personal stock portfolio this six figure portfolio which I call the fire fund generates enough passive dividend income for me to live off of it allowed me to retire in my early 30s I made my portfolio entirely accessible over at patreon and I also post alerts there whenever I buy or sell stock I put my money where my mouth is and I'm often invested in the same high quality dividend growth stocks that I make videos on over the years I've heard from thousands of investors who've been profiting from many Sim exact stocks that I own so if you think this is something that you could benefit from as well check the link in the description to see my portfolio after getting my buy and sell alert I'll see you next time
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