Bank of America (BAC 1.31%) is Warren Buffett's favorite bank and has been for years, despite Berkshire Hathaway selling some of its shares last year. It's now fallen to become the company's third-largest position, accounting for 10.1% of its equity portfolio, and investors shouldn't think there's lost love between Buffett and BofA. But is Bank of America stock right for you?
Bank of the American people
Bank of America is the second-largest U.S. bank by assets, and it's mostly known for its strong consumer business. That's been a benefit for the company in the high-interest-rate environment as more people take advantage of higher-rate deposit accounts. High interest rates are typically seen as a disadvantage for banks, since people tend to default more often on their loans. But the flip side is that banks can make more money on customer deposits, and for Bank of America, this has been working out quite nicely. It added 1.1 million new consumer checking accounts in 2024 and 4 million credit cards, and consumer investment assets increased 22% to $518 billion.
Its global wealth segment is also performing well, with 24,000 new clients in its Merrill Edge business and 115,000 new bank accounts. It ended the year with $4.3 trillion in client balances, up 12% year over year, and assets under management of $79 billion, up 52%.
NYSE: BAC
Key Data Points
Commercial banking is on the rise, too. Investment banking fees increased 31% in 2024, and average deposits increased 10% to a record $528 billion.
Chief Executive Officer Brian Moynihan pointed out that much of its recent growth was organic and focused on the deposit business. Customers enjoy the company's digital focus and user-friendly features, and they're driving overall company growth. He talked about overall organic growth for the organization as there was an uptick in business throughout the company's different segments. People are engaging more on the platform due to its heavy investments in technology and a generally strong U.S. consumer, and management believes it's outpacing its industry peers. Roughly 78% of consumer banking customers engaged used the digital platform in the fourth quarter, and digital sales represented 61% of the total. This is how Bank of America is positioning itself to stay competitive and dominant even as all-digital banks proliferate and offer distinct benefits for banking customers.
The company is also performing well in its loan categories, with average loans up 3% and commercial loans up 5%. Net interest income exceeded expectations and increased from $14.1 million to $14.5 million year over year in the fourth quarter, driving a revenue increase of 15% and earnings per share (EPS) of $0.82, up from $0.35 the year before.
The classic Buffett stock
BofA is a classic Buffett stock, fitting his criteria for a well-run company that doesn't need to pump more and more money into the business to boost profit. That's what Moynihan is pointing out when he talks about organic growth. People need its services in all sorts of circumstances, so even though its business is cyclical and performance can go up or down depending on the environment, it's always a necessity. It's highly profitable, even if earnings sometimes decline.
Finally, it pays an excellent, growing dividend that yields 2.4% at the current price. Dividends imply a company that's committed to shareholder wealth creation, and that a company is making enough money to operate smoothly and still have some left over to share with investors.
As far as bank stocks go, Bank of America is on the cheaper side, trading at less than 12 times forward one-year earnings and 1.2 times book value. If you're looking for a solid bank stock that you can count on and that pays you passive income, Bank of America is an excellent choice.
