Bank of America is currently paying a nominal quarterly dividend of a penny a share, and did not seek Federal Reserve approval to buy back shares when the regulatory conducted its last round of annual stress tests. Staite estimates that after the 2013 stress tests in March, the company will be approved to pay out $2.086 billion in dividends in 2013, with the dividend yield jumping to 1.8 percent.

While a dividend yield of 1.8 percent is not particularly impressive, considering that JPMorgan Chase is already paying out 30 cents a quarter, translating to a dividend yield of 2.81 percent, based on Wednesday's closing price of $42.77, it's quite a significant jump for Bank of America. And state expects the company's annual dividends to jump to $3.864 billion in 2014, for a dividend yield of 3.4 percent, matching his yield estimate for JPMorgan Chase for that year.

Bank of America certainly has its challenges, mainly springing from its purchase of Countrywide Financial in 2008, with $25.5 billion in unresolved mortgage claims as of Sept. 30. The company also has a long-running dispute with Fannie Mae over putback claims, that has for the most part kept BAC from selling newly originated mortgage loans to the government-sponsored giant.

The company's earnings have been weak, with operating returns ranging from 0.06 percent to 1.08 percent over the past five quarters, according to Thomson Reuters Bank Insight, but as the company's capital has solidified, the shares have recovered quite a bit of what they lost during 2011.

According to Staite, Bank of America "now has a 9.0 percent Basel III ratio meaning that it has effectively met it full Basel III requirements. In comparison JPM currently has a $27 billion deficit and [Citigroup] a $18 billion deficit on our calculations, assuming BAC must reach 9.0 percent but JPM and Citi must reach 10 percent" including the higher capital conservation buffers required by the Federal Reserve for those companies.

Staite estimates that by the end of 2014, "JPM will eliminate its deficit but by this stage BAC will have amassed $29 billion in surplus equity."

The analyst expects Bank of America to be approved to repurchase $4 billion worth of common shares during 2013, with buybacks increasing to $10 billion in 2014, which will "shrink BAC's shares outstanding by around 10 percent which provides part of the explanation for why our 2014 EPS estimates are 25 percent above consensus." The consensus among analysts polled by Thomson Reuters is for Bank of America to earn 97 cents a share in 2013, with EPS increasing by 29 percent in 2014 to $1.25.

Staite estimates that Bank of America will earn $1.23 a share in 2013, increasing to EPS of $1.53 in 2014.

Bank of America's shares currently trade for 10.9 times the consensus 2013 EPS estimate and for 8.6 times Staite's 2013 estimate. The analyst said that "the build-up of surplus capital will also reduce the perception of risk around BAC and drive an increase in the valuation multiple."

A Contrary View

KBW late on Tuesday announced that it was transferring its coverage of Bank of America from Jefferson Harralson and maintaining its "Market Perform" rating on the shares, with a $10 price target, and cutting its 2013 EPS estimate to 95 cents from $1.10, "due to lower expectations in spread income and revenues in global markets." Spread income will certainly not be helped by the Federal Reserve's announcement on Wednesday that it will at least temporarily continue its monthly purchases of $45 billion in long-term Treasury securities and $40 billion in mortgage-backed securities in 2013, while keeping the short-term federal funds rate in a range of zero to 0.25 percent until the U.S. unemployment rate improves to 6.5 percent.

KBW also established a 2014 EPS estimate of $1.20 for Bank of America, with the estimate increasing to $1.30 for 2015.

Despite the neutral assessment, KBW analyst David Konrad said that "we expect core earnings for BAC to improve through 2013," with "continued improvement in US housing, the company's cost-cutting initiatives, and continued benefits from liability management, that may help support spread income during a very challenging interest rate environment."

But Konrad said that "consensus estimates are not likely to improve as many of the potential catalysts are largely baked into expectations."

Bank of America's shares closed at $10.61 Wednesday, returning a remarkable 92 percent year-to-date, following a drop of 58 percent in 2011. Putting those figures in proportion, the shares were still down 20 percent from the end of 2010. For the shareholders that have stuck with the company through thick and thin, the five-year total return was a negative 73 percent through Wednesday.

Of course, the important thing for investors to do is look ahead, and for Bank of America, the only way to go, for dividends and share buybacks, is up.

—By TheStreet.com's Philip van Doorn



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