Key Points
Those who banked on Bank of America‘s (NYSE: BAC) stock to rise last month were well rewarded for their bullishness. Most notably, the prominent lender was among the 32 banks and other financial institutions that aced the Federal Reserve’s (Fed) 2026 edition of its annual stress tests. As in previous years, this will result in a dividend raise, another good reason to invest in the stock.
Among other positive developments, these helped push Bank of America’s equity up by more than 10% in June.
Passing grades
One of said developments was a new cross-border, real-time payments product Bank of America announced near the start of the month. The service, whose name wasn’t revealed, is designed for high-volume, low-value financial transfers, like person-to-person (P2P) and business-to-consumer (B2C) payments.
The bank is promising instant transfers for both sender and receiver, effected via the Swift or CashPro systems. Investors were encouraged by this because demand is rising for such a product — Bank of America said that the P2P segment is expected to rise by 58% and B2C by a whopping 132% by 2032.
The Fed published the results of the stress tests on June 25 and, like the other companies in the regulator’s exam room, Bank of America saw its shares bump higher. That stood to reason, as the point of the stress tests is to gauge how effectively a lender might cope with sharp and sudden economic crises.
Even though these tests have been conducted for years, it’s still immensely satisfying to investors when their company, or companies, get a passing grade.
One reason for this is that it almost guarantees the passers will raise their dividends, a habit that has become nearly a custom. This year’s raises are generous, too, with Bank of America’s fellow Big Four lenders — JPMorgan Chase, Citigroup, and Wells Fargo — all aiming for lifts of at least 10% in their coming quarterly payouts (each is subject to board of directors approval).
Bank of America is more cautious than its peers, preferring to wait a while before making a similar declaration. But we can count on a double-digit hike from it, too.
Finally, just after those results were disseminated, two analysts raised their price targets on the bank. Morgan Stanley‘s Betsy Graseck raised her to $67 per share from $61, while her peer John McDonald of Truist Securities upped his to $64 from $61. Both maintained their equivalents of buy recommendations.
A solid lender, as ever
Banks are cyclical businesses, so for anyone like me who believes the U.S. economy can hold up under the pressures it’s currently facing (including inflation, among other potential headwinds), Bank of America is a solid stock play.
The stress test results show that it’s well protected even if the cycle starts to turn against it, so the stock is even something of a defensive play if the economy goes sour. I would confidently invest in this well-known lender.
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Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Truist Financial. The Motley Fool has a disclosure policy.
