What’s next for Bank of America investors as shares near $30?

Bank of America investors should expect the company to keep increasing its dividend and buying back more shares, as the Charlotte bank continues to generate excess capital, CEO Brian Moynihan said at a financial services conference Tuesday.

Moynihan’s remarks came shortly after Bank of America announced it’s buying back an additional $5 billion of its common stock by June 30, 2018. The purchases come on top of the bank’s previously announced plan to purchase about $12.9 billion in stock from July 1, 2017, through June 30, 2018.

Share buybacks can benefit investors because the reduction in shares means profits are spread among fewer shares. The bank’s profits have been on the rise in recent quarters as it cuts costs and boosts revenue.

Big banks typically announce buybacks and dividend increases after they pass annual Federal Reserve stress tests, which are now completed in June. But Moynihan said the latest repurchase program followed events that were not covered by the bank’s most recent capital plan. In June, the company completed the sale of its United Kingdom credit card business, and in August Warren Buffett’s Berkshire Hathaway exercised warrants that required the bank to issue 700 million shares of common stock.

“When capital is freed up, you want to get it out of the company,” Moynihan said at the Goldman Sachs U.S. Financial Services Conference.

The Fed and Bank of America’s board approved the additional share buybacks, the bank said.

In addition to buying back shares, Bank of America in recent years has also been increasing its quarterly dividend, now at 12 cents per share, after slashing it to 1 penny during the financial crisis. Going forward, investors should expect the bank to continue to ask the Fed for higher dividend payouts and more share buybacks, Moyninan said.

Although good news for investors, the recent rise in the bank’s share price is making buying back stock more expensive for the company. After a more than 70 percent climb from Election Day 2016, the shares closed Monday above $29 but dipped Tuesday to finish trading at $28.94. The last time the stock closed above $30 was October 2008.

“Our stock is still a good investment,” Moynihan said, “and we continue to buy.”

After Tuesday’s announcement, analysts at Bernstein Research raised their 2018 earnings per share estimate for the bank to $2.13 from $2.10 and said the bank could be “next year’s winner” in terms of dividend and buybacks allowed by the Fed in the next stress tests.

This story was originally published December 5, 2017 at 12:17 PM with the headline "What’s next for Bank of America investors as shares near $30?."