Bank of America Corp (NYSE:BAC) is a Top 25 “Dividend Giant” according to ETF Channel because of its healthy dividend yield of 2%, its history of raising dividends and its growing business.
That’s great to hear if you own BAC stock.
However, while its dividend might be good compared to America’s other big banks, if you move outside that small circle, you’ll find there are bank stocks available whose businesses are just as safe yielding considerably more.
Take the five big Canadian banks, including the likes of Royal Bank of Canada (NYSE:RY) and Bank of Montreal (USA) (NYSE:BMO). Together, their average dividend yield is 4% — almost double Bank of America. I’ll grant you, they face domestic growth issues after sewing up most of the Canadian personal and commercial banking markets. But the Canadian government has gone overboard to ensure they remain financially sound — some would say to the detriment of the consumer — so I’m confident they’ll all be around in 10 years.
But this isn’t an article about Canadian banks. Nor is it an article about the quality of Bank of America’s business or BAC stock.
Rather, it’s an examination of how Bank of America is doing on job creation — a policy Donald Trump supposedly cares about, and something that’s important to all of us not in the top 1%.
Good Companies Create Jobs
Technology is challenging the premise that “good companies create jobs,” so it’s possible I’m barking up the wrong tree here. But I firmly believe that stocks do well when companies do well, and companies do well when people do well.
Job creation, especially good-paying positions, is the cornerstone of growth for any developed economy. Whether we’re talking about banks, technology companies or retailers, the good ones manage to create jobs in both good and bad economic conditions.
In May, I wrote about Apple Inc. (NASDAQ:AAPL) CEO Tim Cook and his commitment to creating American manufacturing jobs. While I don’t always agree with Apple, I applaud its initiative to create jobs in America. More jobs equal more iPhone sales. It’s good business.
How’s Bank of America Doing?
As of the end of June, BofA had 211,000 employees worldwide. BAC stock hit its all-time high of $55.08 in November 2006, a year it ended with 203,425 employees.
So, between 2006 and 2017, Bank of America created 7,575 jobs, a 3.7% increase. Meanwhile, its assets grew by $800 billion, or 53.3%, to $2.3 trillion. And yet in almost 11 years, BAC stock has yet to recover to the halfway point from its all-time high.
On a positive note, its CEO compensation has declined by 43% since 2006 from $27.9 million for Kenneth Lewis to $15.9 million in 2016 for current boss Brian Moynihan.
Since I mentioned Canadian banks earlier, I thought I’d compare Bank of America to Royal Bank of Canada, Canada’s largest bank by market cap.
In 2006, Royal Bank had 60,858 full-time employees. Fast forward to 2016, and it had 75,510 people working full-time — a 24.1% increase, or seven times Bank of America’s job creation. Equally important, RY grew its assets by $643 billion or 119.9% to $1.18 trillion.
Before you think I’m a fan of Royal Bank at the moment, think again. Earlier this summer, the bank announced it was cutting 450 jobs at its head office in Toronto, shifting those salaries to technology investments.
Banks are solely about making money, and while I have a problem with that, it is what it is.
Bottom Line on BAC Stock
Last April, I suggested that Bank of America shares were a steal. Since then, it has returned more than 80%. The stock was cheap then, but it doesn’t provide nearly as much value at current prices despite reasonably good second-quarter earnings.
However, where Bank of America truly fails to deliver is in creating jobs — jobs that would bring additional customers.
I’m not saying it should stop you from buying BAC stock. But it is something investors ought to consider before making an investment in any company.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
