Bank of America's Preferred Stock Series SS Yield Pushes Past 6%

Bank of America's 4.750% Dep Shares Non-Cumulative Preferred Stock Series SS (BAC.PRS) traded with a yield exceeding 6% on Tuesday, notably at a 20.28% discount to its liquidation preference. This discount is significantly wider than the 8.44% average for "Financial" preferred stocks, despite BAC.PRS's yield being slightly below the sector average of 6.51%. Investors should account for its non-cumulative dividend feature, which means missed payments are not recoverable.

Analysis

Bank of America's non-cumulative preferred stock, Series SS (BAC.PRS), is exhibiting notable valuation and yield characteristics. On Tuesday, the security's yield surpassed 6% based on its $1.1875 annualized dividend, with shares trading as low as $19.73. This yield is slightly less competitive than the 6.51% average for the financial preferred stock category. The most significant metric is the security's price, which represents a 20.28% discount to its liquidation preference amount. This discount is substantially wider than the 8.44% average for its peer group, suggesting the market is pricing in higher risk or has overlooked this specific issue. The security's non-cumulative nature is a key risk factor, as any missed dividend payments are permanently lost to shareholders. This risk may be contributing to the underperformance, evidenced by BAC.PRS declining 0.6% on a day when the common shares (BAC) gained 1.1%, indicating a clear divergence in investor sentiment between the company's equity and this specific fixed-income-like instrument.

Key Decisions for Investors

• Income-oriented investors may find the 20.28% discount to liquidation preference attractive for its capital appreciation potential, should the spread to its peers narrow, though the yield itself is below the sector average.
• The non-cumulative dividend structure presents a significant risk compared to cumulative peers; investors should factor this into their assessment of Bank of America's creditworthiness and ability to sustain payments, as missed dividends are not recoverable.
• The performance divergence between the declining preferred shares (BAC.PRS) and the rising common stock (BAC) warrants scrutiny, suggesting a need to evaluate if this is a specific issue-related risk or a broader mispricing within the company's capital structure.