Critical Review: Bank of America (NYSE:BAC) versus Charles Schwab (NYSE:SCHW)

Charles Schwab (NYSE:SCHW) and Bank of America (NYSE:BAC) are both large-cap finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, analyst recommendations, profitability, valuation, risk, institutional ownership and earnings.

Profitability

This table compares Charles Schwab and Bank of America’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Charles Schwab	35.93%	21.02%	1.86%
Bank of America	16.23%	11.07%	0.90%

Analyst Recommendations

This is a summary of recent recommendations and price targets for Charles Schwab and Bank of America, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Charles Schwab	1	5	16	1	2.74
Bank of America	0	3	23	1	2.93

Charles Schwab presently has a consensus price target of $114.45, indicating a potential upside of 12.38%. Bank of America has a consensus price target of $59.74, indicating a potential upside of 14.76%. Given Bank of America’s stronger consensus rating and higher probable upside, analysts clearly believe Bank of America is more favorable than Charles Schwab.

Dividends

Charles Schwab pays an annual dividend of $1.08 per share and has a dividend yield of 1.1%. Bank of America pays an annual dividend of $1.12 per share and has a dividend yield of 2.2%. Charles Schwab pays out 25.3% of its earnings in the form of a dividend. Bank of America pays out 29.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Charles Schwab has raised its dividend for 1 consecutive years and Bank of America has raised its dividend for 11 consecutive years. Bank of America is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

This table compares Charles Schwab and Bank of America”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Charles Schwab	$19.61 billion	9.23	$5.94 billion	$4.27	23.85
Bank of America	$191.57 billion	1.98	$30.51 billion	$3.83	13.59

Bank of America has higher revenue and earnings than Charles Schwab. Bank of America is trading at a lower price-to-earnings ratio than Charles Schwab, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

84.4% of Charles Schwab shares are held by institutional investors. Comparatively, 70.7% of Bank of America shares are held by institutional investors. 6.3% of Charles Schwab shares are held by insiders. Comparatively, 0.3% of Bank of America shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Risk & Volatility

Charles Schwab has a beta of 0.94, suggesting that its stock price is 6% less volatile than the S&P 500. Comparatively, Bank of America has a beta of 1.29, suggesting that its stock price is 29% more volatile than the S&P 500.

Summary

Charles Schwab beats Bank of America on 9 of the 17 factors compared between the two stocks.

About Charles Schwab

The Charles Schwab Corporation, together with its subsidiaries, operates as a savings and loan holding company that provides wealth management, securities brokerage, banking, asset management, custody, and financial advisory services in the United States and internationally. The company operates in two segments, Investor Services and Advisor Services. It offers brokerage accounts with equity and fixed income trading, margin lending, options trading, futures and forex trading, and cash management capabilities, including certificates of deposit; third-party mutual funds through the Mutual Fund Marketplace and Mutual Fund OneSource service, as well as mutual fund trading and clearing services to broker-dealers; exchange-traded funds; advisory solutions for managed portfolios, separately managed accounts, customized personal advice for tailored portfolios, specialized planning, and full-time portfolio management; banking products comprising checking and savings accounts, first lien residential real estate mortgage loans, home equity lines of credit, and pledged asset lines; and trust custody services, personal trust reporting services, and administrative trustee services. It also provides digital retirement calculators; integrated web-, mobile-, and software-based trading platforms, real-time market data, options trading, premium research, and multi-channel access; self-service education and support tools; online research and analysis tools; equity compensation plan sponsors full-service recordkeeping for stock plans, stock options, restricted stock, performance shares, and stock appreciation rights; retirement plan services; mutual fund clearing services; and advisor services, including interactive tools and educational content. The Company operates through branch offices. The Charles Schwab Corporation was incorporated in 1971 and is headquartered in Westlake, Texas.

About Bank of America

Bank of America Corporation, through its subsidiaries, provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. It operates in four segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, and Global Markets. The Consumer Banking segment offers traditional and money market savings accounts, certificates of deposit and IRAs, non-interest and interest-bearing checking accounts, and investment accounts and products; credit and debit cards; residential mortgages, and home equity loans; and direct and indirect loans, such as automotive, recreational vehicle, and consumer personal loans. The GWIM segment provides investment management, brokerage, banking, and trust and retirement products and services; wealth management solutions; and customized solutions, including specialty asset management services. The Global Banking segment offers lending products and services, including commercial loans, leases, commitment facilities, trade finance, and commercial real estate and asset-based lending; treasury solutions, such as treasury management, foreign exchange, short-term investing options, and merchant services; working capital management solutions; debt and equity underwriting and distribution, and merger-related and other advisory services; and fixed-income and equity research, and certain market-based services. The Global Markets segment provides market-making, financing, securities clearing, settlement, and custody services; securities and derivative products; and risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income, and mortgage-related products. Bank of America Corporation was founded in 1784 and is based in Charlotte, North Carolina.